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Healthy cat bond trading on Irene fears

Willis Capital Markets & Advisory managing director Bill Dubinsky estimated trading on the secondary cat bond market reached about $100mn in volume last week as Hurricane Irene bore down on the US, on top of the livecat activity.

"People were using the two markets together," he said, noting that the secondary cat bond market was delivering healthy liquidity. "The liquidity of the market has improved over the past 3-5 years."

As Trading Risk reported last week, Johnston Re notes issued by the North Carolina state wind pool were among those that changed hands.

A couple of small trades in the $1mn range are understood to have closed early last week as Irene passed through the Caribbean.

One trade was in the $202mn Johnston Re 2011 notes while the $305mn 2010 series notes changed hands later in the week, sources said.

The 2010 notes cleared at a slight discount to par, in the range of 95 cents+, from prices just above par before the storm emerged, according to trading sources. This followed a small trade in the 2011 issuance earlier in the week at pricing slightly above par, Trading Risk understands.

However, pricing fell further later in the week, according to pricing sheets seen by Trading Risk that showed prices as low as 55-70c per dollar.

Dubinsky noted that predictions for Hurricane Irene "were pretty dire" by Thursday, but added that some nationwide bonds with very high expected losses were just as likely to attach as some region-specific bonds.

However, after the storm cleared ratings agency Standard & Poor's (S&P) said it did not expect to alter the ratings of the catastrophe bonds it rates that were exposed to Hurricane Irene losses - including the two Johnston Re bonds.

It rates $1.9bn in notes exposed to Irene losses, including the $507mn Johnston Re notes.

The other notes S&P listed as being exposed to Irene were Travelers' Longpoint Re 2009 notes, Chubb's 2011 East Lane Re, the Massachusetts wind pool Shore Re offer, and the Hartford's 2010 and 2011 Foundation Re issuances.

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