'09 Cat Bond Issuance Activity Expected To Be Strong

NU Online News Service, April 13, 2:55 p.m. EDT

Catastrophe bond issuance activity is not expected to re-visit the record-breaking levels of 2007, but estimates currently put 2009 on track to supplant 2008 as the third-busiest year for cat bonds, according to a brokerage forecast.

The briefing, published by Guy Carpenter & Company, LLC, said three bonds were closed in the first quarter of 2009, equaling 2008's first-quarter activity. The three bonds followed five months of silence since the last issuance in August 2008, the brokerage said.

It cited the ongoing global financial troubles for the slowdown during that period.

It is still too early to say whether the catastrophe bond market will be impacted further by the economy, according to the report, but it adds that the 2009 first-quarter resurgence is "certainly a positive sign."

For all of 2009, Guy Carpenter reported, the "consensus estimate" for issuance activity is $3 billion, conditional on market conditions.

If that level is reached, the firm said it "would result in an 11.1 percent year-over-year increase in catastrophe bond capital outstanding, as well as 2009 supplanting 2008 as the third-busiest issuance year in the history of the catastrophe bond market."

In 2008, 13 issues resulted in $2.7 billion in new and renewal capacity. In 2007, a record-setting year, there were 27 bond issues, accounting for $7 billion in capacity. The second-highest totals were in 2006, which saw 20 issues for $4.7 billion in capacity.

In the 2009 first quarter, Guy Carpenter reported the three bonds closed resulted in $575 million in capital. The number of transactions equaled 2008's first quarter.

All three transactions were for U.S. hurricane and earthquake perils only. Guy Carpenter said "the coverage of U.S. perils only in the first quarter of 2009 represents a distinct change from the first quarter of 2008, in which $400 million in risk capital had exposure to non-U.S. perils."

Also during the 2009 first quarter, six transactions matured and one was redeemed early, removing $650 million from the catastrophe bond market, resulting in a net decrease in risk capital for the first quarter of $75 million.

David Priebe, chairman of Global Client Development at Guy Carpenter, said in a statement: "The outlook for the remainder of 2009 is positive, with a strong pipeline of deals in the works. Sponsors are increasingly integrating catastrophe bonds into their risk management plans and leveraging these instruments as strategic tools for moving risk out of carrier portfolios."

Chi Hum, global head of distribution, GC Securities, added, "Though a return to the pace of 2007 is unlikely, we expect 2009 to be a busy year, with most issuances coming from experienced sponsors with clear risk management objectives and investment interest from specialists who are familiar with the territory."


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