David Priebe, Chairman of Global Client Development *
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The third quarter is usually quiet for the catastrophe bond market, and 2009 was consistent with past years. Issuers completed two transactions, bringing USD412 million in risk capital to the market. Nonetheless, risk capital issued was up by a third relative to the same quarter last year, as both catastrophe bonds issued were upsized considerably. The consensus estimate for the entire year remains USD3 billion to USD4 billion, implying a strong fourth quarter for primary issuance.

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David Priebe, Chairman of Global Client Development
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A year ago, (re)insurers’ access to capital markets was in doubt. A worldwide financial crisis decimated balance sheets, sent equity values tumbling and caused credit markets to come to a standstill. Today, however, the situation has changed completely. Catastrophe bond issuances have resumed, and the mergers and acquisitions (M&A) market is gaining momentum. (Re)insurers are turning to capital markets to address a wide range of strategic and tactical needs. It is clear that this source of capital remains both viable and reliable.

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Guy Carpenter & Company, LLC hosted “Capital Creativity — the Road to Renewals,” the Baden-Baden Reinsurance Symposium held in Baden-Baden on October 25. The event focused on the effective management of capital in the (re)insurance industry.The symposium was moderated by Chris Klein, Global Head of Business Intelligence at Guy Carpenter. Henry Keeling, President and CEO of International Operations at Guy Carpenter, provided the opening remarks, followed by presentations from Luzi Hitz, CEO of PERILS; Clemens von Weichs, CEO of Allianz SE, Reinsurance Division; and Victor Peignet, CEO of SCOR Global P&C. Wolfgang Gerstner, Lord Mayor of the City of Baden-Baden, welcomed attendees to the city.

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GC Securities, a division of MMC Securities Corp.*
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The third quarter is traditionally quiet for the catastrophe bond market, and 2009 was no exception. Two transactions were closed, resulting in USD412 million in new risk capital.¹ Nonetheless, risk capital issued was up by a third relative to the same quarter last year, as both catastrophe bonds issued were upsized considerably. The consensus estimate for the entire year remains USD3 billion to USD4 billion, implying a strong fourth quarter for primary issuance.

• Issuance Activity
• Catastrophe Bond Redemptions
• Risk Capital Outstanding
• Issuance Composition
• Industry Loss Warranties
• Outlook for the Fourth Quarter

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David Priebe, Chairman of Global Client Development
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The role of capital markets in the (re)insurance industry was uncertain a year ago. The eruption of the financial catastrophe within weeks of last year’s Rendez-Vous caused credit markets to seize and wreaked havoc on equities. Access to capital not in the reinsurance system already effectively closed. Today, however, the situation is vastly different. Financial markets are thawing, and equity values are coming back. Investors are showing more confidence in insurance risks — both directly, through catastrophe bonds, and indirectly, via equity markets. Mergers and acquisitions (M&A) are gaining momentum, as well. We’ve pierced last year’s cloud of pessimism, and the opportunities ahead are quite clear.

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GC Securities, a division of MMC Securities Corp.*
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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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Peter Zaffino, President and CEO
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Last year, a financial catastrophe shook major market centers around the world. Several prominent, global banks have all but disappeared. Yet, insurers and reinsurers, in general, have persevered. We have been able to absorb the losses in capital triggered by both economic conditions and the second-busiest catastrophe year in at least four decades. But, these developments have changed our business, from perspective to transaction. This is particularly evident in the market for insurance-linked securities (ILS).*

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PERILS AG, an independent Zurich-based company, has been established to aggregate and provide industry-wide European catastrophe insurance data as a subscription service. The aggregated data sets will be derived from data voluntarily provided by European-based insurers.

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David Priebe, Chairman of Global Client Development
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The catastrophe bond year ended back in July, and two quarters of virtual silence have signaled an abrupt change in the market. After 2006 and 2007, we had become accustomed to record-setting issuance years. Hopes were high for 2008, which was on track with the previous year through the beginning of the third quarter. Then, everything just stopped. Given how 2008 progressed, we cannot judge the catastrophe bond market as we would in a normal year. A worldwide financial meltdown affected the insurance and reinsurance industry deeply, creating conditions that will make 2009 unpredictable. Nonetheless, catastrophe bonds did demonstrate their resilience, indicating their likely importance this year.

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Christopher Klein, Global Head of Business Intelligence
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The popularity of sidecars seems to have ended. The availability of traditional capital and access to insurance-linked securities (ILS) and other alternatives simply has made sidecars less attractive. But, reinsurers know that the market can harden at any time, with one mega-catastrophe creating near-immediate demand for fresh capital. Low overhead and an inherent exit strategy are likely to help these vehicles regain prominence in the next hard market—with investors and reinsurers alike.

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