ILS secondary market
The market where catastrophe notes trade between investors after issuance, at quoted prices.
In late September 2022, as Ian closed on Florida's west coast, cat bonds exposed to the state dropped on the secondary market within a few sessions, before any loss figure existed. That is the secondary market for insurance-linked securities: market makers quote bid and offer, and an investor can exit before maturity. In practice it only covers public formats, mostly 144A; private deals are built to be held. Without it, on three-year paper, investors would demand an illiquidity premium that cedants would pay. It also gives a continuous price, where the primary market only speaks at renewals. Quotes move for three distinct reasons: a season passing without loss, which adds value to elapsed time; an event, which moves exposed bonds sharply; a model revision, which can knock a bond down with nothing having happened. Volumes stay thin, and they dry up precisely in the weeks after a large event, when people want to sell.
A hurricane-exposed note trades at 101.2 percent of par in June 2026, before the season has begun. As a major system approaches in September, quotes fall to 68 percent in four days, on volumes of 2.1 million dollars against 14 million in preceding weeks. The system weakens before landfall: the note recovers to 96 percent within three weeks.
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