Jamaica cat bond price down slightly, perhaps due to minor track revision uncertainty

According to sources, after hurricane Beryl came very close to triggering Jamaica’s $150 million IBRD CAR Jamaica 2024 catastrophe bond, there has been a slight decline in where it is marked on some pricing sheets, but this is thought only to account for minor uncertainty related to the potential for its track and meteorological data to be revised.

It’s important to note here that, nobody we’ve spoken with in the insurance-linked securities (ILS) market anticipates there being any adjustments to the official track and pressure data, as the data sources used so far to analyse whether Beryl triggered the Jamaica catastrophe bond were from the official source, the so-called “b-deck”.

As we reported on Thursday last week, early analysis using the official “b-deck” track data from the Automated Tropical Cyclone Forecast (ATCF) System, showed that the cat bond would not be triggered, with Beryl passing south of Jamaica and its pressure too low to trigger the bond in the parametric zones it had passed through.

This was later confirmed by ILS manager Plenum Investments.

In the past, parametric cat bonds have used data sources that took weeks or even months to finalise a triggering event and there have been cases where the initial data was later revised, driving a period of uncertainty for holders of the notes.

In this case though, the latest iteration of the World Bank’s catastrophe bond for Jamaica uses this “b-deck” tropical cyclone data, which is available very soon after a storm occurs, meaning a trigger determination can be made more quickly, or if a calculation is not required that is also known sooner.

In this case, even Jamaica’s Finance Minister has acknowledged that hurricane Beryl has not triggered any payout from the catastrophe bond.

But, the notes have still moved in Friday’s secondary cat bond market pricing sheets, with one sheet said to be marking the Jamaica IBRD cat bond notes for bids of 90, but with a wide spread to offers of 98. Other marking them nearer 95 with a spread to 99.

At that degree of spread, between the bid and the offer price, it appears this is just being marked to account for the fact that there is always a degree of uncertainty present.

We suspect this is because, if it were later proven that the system recording the “b-deck” cyclone track data were faulty, or its technology malfunctioning, then either another source could be used, or the data could be revised, in order to protect the beneficiary from missing out on a potential payout.

So broker-dealers may be, in some cases, accounting for that minor uncertainty it seems, with slightly reduced bids and a wider spread, also indicating that trading could be light in these notes for a short while.

The bid will recover though and the notes will come back to par now it’s known there has been no trigger event, so no value has actually been lost.

This is just how financial markets behave when uncertainty is introduced, so its no real surprise to see catastrophe bonds doing the same. It’s also a further signal of the fact hurricane Beryl did come within a relatively narrow margin of triggering the cat bond.

It’s worth noting that, as Beryl was too weak and degraded to even come close to triggering the IBRD Mexico Atlantic hurricane cat bond notes, those have not moved notably in any secondary cat bond pricing sheets we’ve seen.