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NEWARK, Calif. - November 09, 2015 Return relative to risk values for catastrophe bonds at current prices are actually higher in 2015 than they were last year, even though market commentary suggests that market prices have bottomed out, according to new research by RMS, the world’s leading catastrophe risk management firm.

When expected losses for the market portfolio are re-calculated to consider the time-value of money, and adjusted to account for seasonal variations, RMS analysis shows that spreads were higher this year than last. Despite the prevailing commentary and accounting for underlying market prices, the catastrophe bond market is providing a higher return to investors today than it did a year ago.

“Primary pricing of individual cat bonds is based largely on the expected losses available from ILS portfolio management platforms,” said Jin Shah, director, capital markets, at RMS, “but true risk pricing can be calculated only by considering all dimensions of loss, including seasonal variations and the time-value of money. Only by having all bonds evaluated in one risk platform can changes in risk premium over time be better evaluated to identify new trends in the market.”

To obtain this insight into market pricing, RMS applied the same model across more than 130 issuances in the secondary markets. The analysis showed, for example, that on Sept. 30, 2014, the difference between bond spreads and the adjusted expected loss was 2.22 percent, compared with 2.52 percent on the same day this year.

“The pricing of cat bonds at the end of the third quarter of 2015 was 30 basis points higher than it was on the same date in in 2014, relative to the risk and adjusted for the time-value of money,” Shah said, “but only accurate risk and return modeling reveals the true rewards.”

Details of the methodology behind the research can be found on the RMS Blog: http://www.rms.com/blog/2015/11/05/cat-bond-pricing-calculating-the-true-rewards/.

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About RMS

Risk Management Solutions, Inc. (RMS) helps insurers, financial markets, corporations, and public agencies evaluate and manage global risk from natural and man-made catastrophes, including hurricanes, earthquakes, floods, climate change, cyber, and pandemics.

RMS leads the catastrophe risk industry that we helped to pioneer by marrying data and advanced model science with leading-edge technology. Leaders across multiple industries can address the risks of tomorrow through RMS Risk Intelligence™, our open, real-time exposure and risk management platform, enabling them to tap into RMS HD models, rich data layers, intuitive applications and APIs that simply integrate into existing enterprise systems.

RMS is a trusted solutions partner enabling effective risk management for better business decision making across underwriting, risk selection, mitigation, and portfolio management.

Visit RMS.com to learn more and follow us on LinkedIn and Twitter.

Media Contacts

Matthew Longbottom

PR Lead, EU and APAC
+44 20 7444 7706 prteam@rms.com

Devonne Cusi

PR Lead, Americas
+1 551 226 1604 prteam@rms.com
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