July 27th, 2009

Chart: Cat Bond Median Expected Loss from 1997 through 2009 YTD

Posted at 12:54 AM ET


Sponsors are reacting to the market’s minimum return requirements by increasing the risk profiles of the transactions they place. This year, the median year-to-date expected loss is the highest in the market’s history, even exceeding 2006 (which was influenced by the active 2004 and 2005 hurricane years). With the availability of leverage down — and its cost up — investors are looking at transactions more carefully in order to meet their return targets. Investors, effectively, are willing to accept (and in some cases actively seeking) transactions with embedded leverage (via multi-peril, multi-zone exposures) for peak risks to meet return hurdles. In an environment in which financial leverage is plentiful and cheap, investors (particularly the dedicated catastrophe funds) should be more inclined to build portfolios with composed of diversified perils and more remote risk profiles — which carry lower coupons — as it is easier to borrow against a book that is stable (i.e., less total exposure to a single event or peril) and carries less risk.

To download this chart, right-click on the image, and select “Save Picture As”. If you have any trouble, please e-mail us.

Click here to receive e-mail updates from GC Capital Ideas >>


* Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.

AddThis Feed Button
Bookmark and Share

Related Posts