May 16th, 2012

Catastrophe Bond Update: First Quarter 2012 - Redemptions and Risk Capital Outstanding

Posted at 1:00 AM ET

Catastrophe Bond Redemptions

In the first quarter of 2012 the equivalent of USD711.3 million of risk capital matured. The composition of these maturities is shown immediately below.

 

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An additional USD2.51 billion of risk capital is scheduled to mature during the balance of 2012. Of this amount, USD1.44 billion is scheduled to mature prior to June 30, 2012.

Risk Capital Outstanding

Total risk capital outstanding increased by 5.2 percent from USD12.14 billion to USD 12.77 billion during the first quarter of 2012. This is the first time the market posted a first quarter increase in net risk capital outstanding since the period preceding the 2008 financial crisis.

Risk capital outstanding peaked at the end of 2007 at USD14.02 billion. It then fell to USD11.19 billion by the end of the first quarter 2009 and thereafter remained within a range of USD10.90 billion and USD12.5 billion before dropping to USD10.60 billion at the end of the second quarter 2011. Over the past three quarters, however, risk capital outstanding has increased by 20 percent (USD2.13 billion). Given the amount of scheduled maturities and the current and potential pipeline, we are optimistic that risk capital outstanding should continue to increase. Risk spreads on 2012 transactions have been increasing, which could moderate protection buyer demand, all else being equal. Critical factors affecting catastrophe bond issuance for the remainder of the year include relative pricing and capacity in the traditional reinsurance market, which is particularly important for primary insurance company sponsors, and the insured catastrophe loss activity during the balance of the calendar year.

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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, Inc. 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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