October 4th, 2011

Catastrophe Bond Risk Capital Outstanding

Posted at 1:00 AM ET

As of August 5, non-life cat bond maturities had outstripped new non-life cat bond issuance, resulting in the non-life cat bond risk capital outstanding decreasing from USD12.185 billion at year-end 2010 to USD10.137 billion (see Figure 1). Only four transactions with a new issuance total of USD592 million closed during the second quarter of 2011, making the period the least active second quarter in terms of primary new issuance since 2005. The RMS U.S. wind model update and a full loss suffered on the USD300 million Muteki cat bond transaction caused by the Tohoku earthquake in Japan were contributing factors to the low activity. It is important to note, however, that the catastrophe bond market continued to trade in an orderly and disciplined fashion in the aftermath of one of the largest earthquakes in recorded history. Moreover, as evidenced by continued net new cash inflows into the sector, capital market investors are continuing to make allocations to the catastrophe risk asset class. 

Figure 1

WCat fig 5 [Converted]

Indeed, the first three months of 2011 was the most active first quarter in the history of the catastrophe bond market in terms of new issuance. In total, four transactions came to market, securing USD1.02 billion of new and renewal risk transfer capacity. This was a significant increase over the USD300 million issued during the first quarter of 2010 and even surpassed the previous first quarter high of USD615 million in 2008. Issuance was diverse in terms of risk profile and structure, though U.S. hurricane risk was a common theme in all four transactions. All transactions marketed during the first quarter of 2011 priced within or inside their initial spread guidance.

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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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