Responding to the potential impact of losses from hurricane Milton, the catastrophe bond market has fallen by just 1.34% at the top of week pricing of the index calculated by Swiss Re Capital Markets, while the US wind specific version of the cat bond index fell by only 3.64%.

It’s a stark contrast to how the Swiss Re Global Cat Bond Index behaved after hurricane Ian in 2022 and while these figures fall into the range of catastrophe bond market impacts anticipated, it shows that (absent future surprises) overall losses from hurricane Milton are set to be very manageable for cat bond fund managers and their investors.

At yesterday’s pricing, the Swiss Re Capital Markets team has marked the Swiss Re Global Cat Bond Total Return Index down by 1.34%.

That index tracks your entire outstanding catastrophe bond market, so across the complete range of perils and regions. It’s the perfect proxy for the hit or drawdown to the catastrophe bond market after an event like hurricane Milton.

Swiss Re also calculates a separate catastrophe bond index focused solely on US hurricane risks, given this stays essentially the most prevalent peril within the cat bond market.

The Swiss Re US Wind Cat Bond Total Return Index fell by 3.64% at its pricing yesterday, in order you’d expect a more meaningful decline than the Global index, but still very manageable.

As we said, this can be a stark contract to how the catastrophe bond market responded to hurricane Ian in 2022.

As we reported at the moment right after Ian, the Swiss Re Global Cat Bond Index dropped by a substantial 10%, while the Swiss Re US Wind Cat Bond Index plummeted by roughly 32%.

As our readers shall be aware, the overwhelming majority of those mark-to-market declines were later recovered, as actual catastrophe bond losses from hurricane Ian remained minimal and really manageable by the market.

Remember, the industry loss from hurricane Ian has been estimated $50 billion to as much as $60 billion.

You may compare the hits to the cat bond market from each hurricane within the chart below:

Hurricane Milton continues to be discussed in a spread from $20 billion to $50 billion, although sources continued to point to $40 billion or so because the potential top-end.

So still a big loss and one where some cat bond principal losses could be anticipated.

What has modified today, such that one other hurricane though initially to have caused an industry loss within the tens of billions of dollars has not knocked the cat bond market by a commensurately large level?

Since Ian, the reinsurance market continued to harden and we saw higher attachment points coming into the cat bond market, in addition to a continued reduction in cat bond features equivalent to aggregate coverage, top and drop, and at the identical time industry loss trigger cat bonds saw attachments generally rising as well.

In order that has made a big difference out there and shall be one reason the hit to the cat bond market doesn’t look commensurate with Ian, in relative terms.

Many individuals discuss the cat bond as a reinsurance and retrocession product designed to cover major loss events only, say $50 billion and better, so with Milton being discussed as below that level it’s perhaps no surprise that the cat bond impact looks manageable.

But, there have perhaps also been some lessons learned in the way in which the cat bond market marks its book, after major catastrophes. The Ian experience, of a ten% market decline that recovered to a decline of around 1%, or perhaps less, was not something investors desired to see repeated and within the case of Milton the marking of bonds within the secondary market appears way more realistic.

All this said, it stays very early days after a catastrophe and so things could change, so it’ll be interesting to look at the Swiss Re cat bond indices over the approaching weeks to see if there may be any further markdowns that occur.

It takes time for catastrophe losses to grow to be clear for the sponsors of catastrophe bonds, so can take time for loss implications to be understood. Hence those marking cat bond prices, for the secondary market, have a key role to play in being as realistic as possible, without being too negative and causing an unnecessary market drawdown.

It’s encouraging to notice that projections for the hit to the catastrophe bond market have proved accurate.

On October tenth, cat bond fund manager Icosa Investments projected it might be below 5%. Then yesterday, on October eleventh, specialist investment manager Twelve Capital projected a cat bond market lack of as much as 4% from hurricane Milton.

Euler ILS Partners said it did “not expect a considerable notional impact on our portfolios and the ILS market usually.”

While Jeffrey Davis of Elementum Advisors, LLC warned that a drawdown could be expected for the cat bond market, but that a few of this is usually seen to be recovered.

While drawdowns are likely to see a robust recovery within the catastrophe bond market, at the very least historical experience suggests that is usually the case, given this one from hurricane Milton, at just one.34%, is maybe smaller than many individuals had anticipated it would suggest there could possibly be less recovery to are available in future.

In fact there may be also typically a probability of some bonds getting marked down in future which have not yet been today, as we’ve also seen with hurricane Ian as some cedents loss positions worsened to this point that they made reinsurance recoveries.

So there stays loads of uncertainty and the catastrophe bond market’s pricing can remain more volatile for a time, after any major catastrophe event.

Finally, it’s value looking how this fall within the catastrophe bond market has impacted investment performance.

While the Global cat bond index is down 1.34% for the week on Milton, since September thirteenth so the closest price date to at least one month, this index remains to be up by 0.39% due to the strong seasonal cat bond performance that has been seen.

Which suggests, at this stage, the catastrophe bond market has absorbed the initial mark-to-market impact of hurricane Milton inside a single month of returns, a quite remarkable feat and this may occasionally be surprising for some.

Yr-to-date, the Swiss Re Global Cat Bond remains to be up by 11.89%, again reflecting the very strong returns still possible within the cat bond market and the very fact the market might be very resilient to mid-sized loss events.

For the Swiss Re US Wind Cat Bond Index, which was down 3.64% at yesterday’s marking, over essentially the most recent month the decline is just 1.56% due to the strong performance being seen, while year-to-date the US Wind cat bond index stays up 10.72%.

In fact, cat bond funds will experience a spread of drawdowns on hurricane Milton, depending on portfolio mix and exposure to US wind and particularly to the cat bonds which were marked down essentially the most at yesterday’s pricing.

We’ve seen some pricing sheets now and we’ll bring you more on Monday on this. But for now, it’s value highlighting that the cat bonds with among the biggest price declines yesterday, equivalent to the riskiest of the FloodSmart Re NFIP cat bonds (being down roughly 53%), are also some with the largest uncertainty around them given there isn’t a indication of claims from FEMA yet and sure won’t be for a while.

More to return next week, but for now it’s clear the general impact to the catastrophe bond market from hurricane Milton is more likely to prove to be perhaps as much as 1.5% if there may be loss creep to take care of. Or, if things improve over time as we’ve seen before, it actually could find yourself one other catastrophe with a 1% or less hit to your entire cat bond market (keep in mind that uncertainty though, lots can occur because the loss picture clarifies).

Note: We’ve seen the Swiss Re Index data on Bloomberg and we don’t know why there may be a distinct value, with a rather higher market decline of 1.4%. The figures in this text are the official data points for the Index.

Also read:

– Hurricane Milton estimated a 0% – 4% principal loss to the cat bond market: Twelve Capital.
– Cat bond market drawdown expected, yields more likely to rise after Milton: Elementum’s Davis.
– Hurricane Milton loss $30bn – $50bn. Substantial ILS impact not expected: Euler ILS Partners.
– Mutual cat bond and ILS funds recuperate ground as hurricane Milton impact clearer.
– Milton loss below $50bn might not be sufficient to maneuver pricing: Jefferies.
– Milton could drive property catastrophe reinsurance rates up at 1/1 2025: KBW.
– Most mutual cat bond & ILS funds slid just a little further on Milton’s final approach.
– Cat bond funds can still finish the yr positively: Twelve Capital’s Wrosch.
– Hurricane Milton losses likely below a 5% cat bond market impact: Icosa Investments.
– Hurricane Milton: Pre-landfall broker loss estimates ranged $15bn to $40bn.
– Hurricane Milton Cat 3 landfall in Sarasota. Worst case Tampa loss scenarios avoided.
– Hurricane Milton: Insurance, reinsurance, cat bonds, ILS able to respond.
– Some mutual cat bond and ILS fund NAVs fall further on hurricane Milton threat.
– Hurricane Milton industry loss at $25bn+ changes pricing narrative: Goldman Sachs.
– Hurricane Milton cat bond loss potential still in wide selection: Icosa Investments.
– Hurricane Milton seen denting cat bond market -1.4% (excl. surge): Plenum.
– 33% probability hurricane Milton loss above $50bn. Would drive hard market: Euler ILS Partners.
– Hurricane Milton Cat 5 again. Tracks barely south. Uncertainty still high, loss range wide.
– Secure to say hurricane Milton likely a $20bn+ insurance market event: Siffert, BMS.
– Hurricane wind speeds forecast across entire Florida Peninsula as Milton approaches.
– Mexico’s catastrophe bond presumed protected from hurricane Milton.
– Stone Ridge leads managers cutting mutual cat bond or ILS fund NAVs on hurricane Milton.
– Hurricane Milton could possibly be an enormous test for your entire (re)insurance market: Evercore ISI.
– Hurricane Milton losses could amount to tens of billions, but uncertainty high: BMS’ Siffert.
– As hurricane Milton intensifies, Mexico’s catastrophe bond comes into focus.
– Material hurricane Milton losses could change 2025 property reinsurance price trajectory: KBW.
– Cat bond & ILS managers explore options to free money, as hurricane Milton approaches.
– Hurricane Milton: First Tampa Bay storm surge indications 8 to 12 feet.
– Hurricane Milton is biggest potential ILS market threat since Ian in 2022: Steiger, Icosa.
– Hurricane Milton forecast for costly Florida landfall. Cat bond & ILS market on watch.