Secondary trading

Trading on the secondary cat bond market leapt in volume in May ahead of the start of the US hurricane season, increasing to $170mn from $85mn in April, Trading Risk understands.

Chubb's monster $475mn East Lane Re IV bond issue boosted secondary cat bond trading volumes in the first quarter as investors looked to clear their portfolios to participate in the deal.

A combination of high volumes of cat bond maturities and a lack of anticipated new issuance in Q2 2011 will depress pricing as investor capital supply outstrips demand, Aon Benfield Securities (ABS) predicts.

Although Munich Re's Muteki deal became the first cat bond casualty of the 11 March Tohoku disaster, ratings agencies have taken action on a number of second event bonds now considered at risk for the US wind season.

Cat bond values suffered their worst decline since the 2008 financial crisis in March as investors assessed losses after the Japanese earthquake.

Cat bond traders expressed satisfaction with secondary trading liquidity in the immediate aftermath of the 11 March Japan earthquake, with many spying yield opportunities in distressed bond prices.

Modelling firm Risk Management Solutions (RMS) is expected to announce on 25 April whether the 11 March Japan earthquake constitutes a first loss for Platinum Re's Topiary Capital cat bond.

Two blocks of Scor's 2009 Atlas VI cat bond changed hands in the aftermath of the Japan earthquake as investors traded on their views of expected loss on the notes, Trading Risk has learned.

Price indications on cat bonds continued to fall last week, underlining fears in the ILS sector that a portion of the $1.4bn outstanding capacity exposed to Japanese earthquake risk could be triggered by the 11 March earthquake.

Purchasers of a large chunk of Solidum's $2.67mn Class A private cat bond notes reported a smooth process as the transaction matured in February.

The loss of veteran trader Dan Madison has left a hole in the Bank of America Merrill Lynch (BAML) trading desk and sparked speculation over where Madison may emerge to trade ILS.

Cat bonds performed strongly in 2010, according to Swiss Re's basket of indices for the asset class, with the reinsurer hailing strong performance indicators as a sign the market has fully recovered from the financial crisis.