Increase in Q4 secondary market trades an “encouraging sign” of recovery: Swiss Re

Swiss Re Capital Markets (SRCM) observed an increase in the number of secondary market trades in Q4 of 2023, indicating an “encouraging sign” that the market has fully-recovered from the capacity constraints and loss uncertainty it had faced following Hurricane Ian.

As per Swiss Re’s recent Insurance-Linked Securities (ILS) Market Insights report, January of 2023 was a busy month for bond trading in the secondary market, driven by fresh capital entering an “opportunistic market”, which was immediately deployed.

However, as the primary market started to pick up in February, SRCM noted a corresponding decline in secondary market activity as investors focused on the new issuance.

“Once the new issuance pipeline slowed down ahead of the North America wind season in June, trading picked up again as investors sought to rebalance their portfolios,” SRCM added.

Trading then reportedly slowed again in the early months of the wind season, with Q4 2023 being “fairly stable” in terms of the number of trades, although, the secondary market was “slightly more active” than historical averages, with an increase in the number of trades compared to the prior-year period.

“This is an encouraging sign that the market has recovered from the capacity constraints and loss uncertainty following Hurricane Ian,” SRCM said in its report.

The firm concluded, “Overall, the secondary market showed that liquidity could be found for investors with redemption or re-allocation needs.”

Signals from the first-quarter of 2024 suggest that activity in the secondary market was also elevated, helping to provide much-needed liquidity for investors.

That appears to be continuing in the second-quarter of the year, which is again encouraging for a market that is now growing steadily, providing a way for cash from maturities to be more easily reinvested, as well as for new investors to build out their portfolios of catastrophe bonds with the help of the services of broker-dealers.