September 4th, 2009

2009 YTD: Top Catastrophe Bond Stories

Posted at 1:00 PM ET

With Rendez-Vous 2009 coming to Monte Carlo next week, review the top stories of the year on catastrophe bonds* below.

Cat Bond Update: Second Quarter 2009: The catastrophe bond market continues to advance, though issuances are down from 2008. The activity represents a positive rally from the hiatus during the second half of 2008. For the first half of 2009, nine bonds have been issued, with aggregate risk capital of USD1.38 billion. The continuing stabilization of financial markets and a decrease in catastrophe bond spreads, however, could result in more issuance activity in the second half of the year, particularly for sponsors which had considered issuances in the first and second quarters but deferred their plans because catastrophe bond spreads were considered to be too wide (i.e., catastrophe bond protection was considered to be too expensive).

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(July 27, 2009)

Cat Bond Update: First Quarter 2009: A strong first quarter has demonstrated that catastrophe bonds are still important tools for risk managers, treasurers, and CFOs. After five months of silence since the last issuance in mid-August 2008, three bonds closed in the first quarter of 2009 bringing USD575 million in fresh capital and confirmation that these instruments are still attractive investments, despite the ongoing the global financial catastrophe. Investor marketing for a fourth catastrophe bond issuance began in the first quarter but is expected close in the early part of the second quarter. Issuance levels are consistent with the first quarter of 2008, a year that seemed likely to be the second-busiest in the history of the catastrophe bond market until the financial crisis accelerated in the fourth quarter of last year.

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(April 13, 2009)

Cat Bonds Persevere in Tumultuous Market: A slow issuance year in 2008 masks a story of resilience and risk management flexibility. After a record-setting year in 2007, catastrophe bond issuances fell 62 percent by issuance volume and 52 percent by transaction count last year. During the first half of the year catastrophe bond issuance was tempered by ample capacity and favorable rates in the traditional reinsurance market, dampening sponsor demand for alternative capacity sources, with the fourth quarter quieter than expected. Overall, however, catastrophe bonds generally withstood the impact of onerous market forces and survived a substantial financial market test of their utility as risk and capital management instruments.

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(February 4, 2009)

Seasoned Sponsors Own Market, Mostly Primaries: Insurers outpaced reinsurers in terms of the amount of risk capital accessed via the catastrophe bond market in 2008. Primary insurers completed six transactions securing USD1.6 billion of protection from the catastrophe bond market in 2008, over USD 434 million more than the USD 1.1 billion accessed by reinsurers though seven transactions. Overall, most of the bonds came from repeat sponsors, ostensibly familiar with how to navigate the catastrophe bond market effectively and the ability to benefit from established relationships with capital market capacity providers and utilize existing shelf programs. Excess reinsurance capacity at the beginning of the year and market turbulence in the fourth quarter helped keep most potential first-time issuers on the sidelines.

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(March 9, 2009)

Shelf Offerings 100% of 2008 Issuances: Shelf offerings have become increasingly common in the catastrophe bond market. First introduced in 2002, this concept of creating a platform for multiple note issuances evolved from the medium-term note programs developed for corporate debt issuers in the capital markets. The advantages of shelf offerings are substantial when compared to the serial approach to catastrophe bond issuance which preceded this innovation. Issuers appear to value the structure, as 100 percent of the catastrophe bonds issued in 2008 used the shelf offering structure. This unanimity among issuers is a profound endorsement of shelf offerings.

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(March 11, 2009)

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* 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.

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