Secondary Market (ILS)
The market where previously issued catastrophe bonds are bought and sold between investors.
The secondary market for catastrophe bonds allows investors to buy and sell previously issued bonds before they mature. This distinguishes cat bonds from other ILS instruments (collateralised reinsurance, sidecars) which have no secondary market and must be held to maturity.
Secondary market liquidity has grown substantially as the cat bond market has expanded. Spreads in the secondary market respond in real time to catastrophe events — when a major hurricane threatens the US coastline, secondary prices for bonds with US wind exposure fall as investors demand higher yields to compensate for the elevated near-term risk.
Secondary market activity is facilitated by a small group of specialist dealers and brokers including Aon Securities, Guy Carpenter Capital Markets, Howden Tiger Capital Markets, and specialist broker-dealers.
Example usage
“After Hurricane Beryl formed in the Gulf, secondary market prices on Florida wind cat bonds fell 15 points as investors re-priced the probability of trigger.”
Frequently asked questions
What is Secondary Market (ILS)?
The market where previously issued catastrophe bonds are bought and sold between investors. The secondary market for catastrophe bonds allows investors to buy and sell previously issued bonds before they mature. This distinguishes cat bonds from other ILS instruments (collateralised reinsurance, sidecars) which have no secondary market and must be held to maturity.
How is Secondary Market (ILS) used in practice?
After Hurricane Beryl formed in the Gulf, secondary market prices on Florida wind cat bonds fell 15 points as investors re-priced the probability of trigger.
More Catastrophe Bonds terms