Posts Tagged ‘catastrophe bonds’
GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member of FINRA/SIPC, today released an analysis of activity and trends within the catastrophe risk market from the fourth quarter of 2013, also including the outlook for 2014. According to the report, influence from direct capital markets’ participation in reinsurance programs, coupled with catastrophic insured losses well below historical averages in 2013, put significant pressure on global catastrophic reinsurance pricing. As a result of significantly reduced pricing, relative to recent years, approximately $7.1 billion worth of new property and casualty (P&C) catastrophe bonds were issued in 2013 - the second highest record year for P&C issuance.
The growth in convergence capital has resulted in ILS catastrophe risk pricing decoupling from price expectations in the traditional reinsurance market, with some ILS products now offering the most competitive terms for reinsurance buyers. Strong appetite for U.S. hurricane catastrophe bonds, for example, has tightened spreads in the secondary market by an average of approximately 45 percent on a weighted notional basis since issuance in 2012. Despite the significant decrease in ILS pricing over the last 12 months, investor demand continues to be robust. Indeed, projections by GC Securities indicate that the catastrophe bond market alone could reach USD23 billion by the end of 2016.
The sector has seen robust catastrophe bond, structured ILW s and collateralized reinsurance activity throughout the last 18 months. In total, around USD10 billion of new capital has entered the global market in these various forms over this period. This segment of the reinsurance market now accounts for an estimated USD45 billion of capacity, approximately 14 percent of global property catastrophe limit purchased, and the penetration of this capacity is growing.
Guy Carpenter is pleased to present our mid-year report on the reinsurance market at a time of dynamic capital growth in the sector. The reinsurance marketplace has undergone significant change since early 2012 as investors continue to supply capacity through a convergence of alternative and traditional vehicles. This new supply has changed the nature of the sector’s capital structure. It has also exerted downward pressure on reinsurance pricing, thereby delivering a more cost efficient source of risk transfer.
Guy Carpenter released its mid-year market report, highlighting a time of dynamic capital growth in the reinsurance industry. As investors supply capacity through a convergence of alternative and traditional vehicles, the report details the ways in which this new supply of capital and excess capacity has changed the nature of the sector’s capital structure.