Catastrophe bonds at their highest level of year

Catastrophe bonds climbed Friday to their highest level of the year amid reports of calmer hurricane outlooks ahead, Bloomberg reported.

“Returns have increased in light of the fact that there’s this increased demand for the bonds, and the sector is performing well,” said Richard Pennay, vice president of Swiss Re Capital Markets in New York.

The Swiss Re Cat Bond Price Return Index rose to 90.56, a 0.3% gain and the sixth consecutive gain in as many weeks, according to Bloomberg.

The index is calculated weekly.

Property/casualty carriers offer catastrophe bonds to investors as a way to offset certain types of risks, such as hurricanes. Investors can lose their principal under certain trigger conditions — which happen to be connected to natural disasters — as the carrier will need the money to help cover policyholder claims.

This summer has been a calm one, with just two named Atlantic storms — Ana and Claudette — emerging thus far and one currently active hurricane, dubbed Bill. The hurricane season starts June 1 and ends Nov. 30.

The National Oceanic and Atmospheric Association of Washington also said this month that it expects a “near-to-below normal” Atlantic hurricane season, but it warned that the season is entering its historical peak period of August through September.

Cat bond issuance is down from the second half of 2008, with just nine bonds issued in the first half, compared with 11 issuances a year earlier, according to data from Guy Carpenter & Co. LLC in New York.

However, the firm expects that there could be more issuances in the second half this year as the financial markets become stable and as catastrophe bond spreads narrow.