NU Online News Service, Oct. 13, 3:13 p.m.EDT

Several converging trends could mean the catastrophe bond marketis poised for one of the most active fourth quarters on record,according to a report by a reinsurance brokerage and investmentbanking unit.

The study was issued today by Guy Carpenter & Company, LLC,and GC Securities, a division of MMC Securities Corp.

It concludes that a number of trends are converging that couldresult in bonds being issued totaling between $3 billion and $4billion this year. These include an increase in risk capital andthe recent upsizing of catastrophe bonds in the third quarter of2009.

The report, "Cat Bond Update: Third Quarter 2009," is availableat www.GCCapitalIdeas.com.

According to the briefing, new risk capital issued in the thirdquarter of 2009 rose 28.8 percent compared with the third quarterof 2008. Two transactions, both closed in July 2009, resulted in$412 million of new risk capital issued, up from $320 millionduring the second quarter of 2008.

The report said for the first three quarters of 2009, a total of11 catastrophe bonds have been issued, accounting for $1.79 billionin risk capital. Year-to-date issuance activity has been down 33.5percent versus the same period in 2008, according to GuyCarpenter.

The report noted two major transactions in the thirdquarter.

o Parkton Re Ltd., on which GC Securities acted as co-leadmanager and joint book-runner, was upsized and ultimately pricedbelow its initial price guidance. The initial target placement of$125 million resulted in a $200 million transaction. The NorthCarolina Joint Underwriting Association and North CarolinaInsurance Underwriting Association (NC JUA/IUA), a new entrant tothe catastrophe bond market, sponsored Parkton Re. The bond coversNorth Carolina hurricane losses based on an indemnity trigger.

o The Eurus II Ltd. transaction, which closed a day later, wasalso upsized to EU150 million ($222 million), from EU75 million($111 million) The bond, which covers European windstorm risk inGermany, the United Kingdom, Netherlands, France, Belgium, Denmarkand Ireland, replaced Eurus Ltd, a $150 million bond that maturedon April 8, 2009.

The report also mentioned that in addition to new bonds issued,$300 million of catastrophe bond risk capital matured in the thirdquarter of 2009, bringing the year-to-date total to $2.54 billion.It said a total of $660 million is scheduled to mature during thefourth quarter of this year.

The study found that following consecutive quarters of declines,total risk capital outstanding increased from the second quarter of2009 to the third quarter, reaching $11.3 billion, up from $11.19billion, a net increase of $112 million (1 percent).

Some $200 million of the $412 million in bonds issued in thethird quarter of 2009 had U.S. hurricane exposure, while theremainder had exposure to European windstorm.

Regarding the outlook for the fourth quarter, according to theanalysis:

o Improvement in global financial market conditions improvingand advances in the insurance-linked securities (ILS) collateralsolutions, coupled with a stronger demand for issuance and theincreasing capacity of investors, have resulted in a shift in theILS market relative to the beginning of 2009.

o Investors are increasingly focusing on capital deployment andstimulating additional primary issuance, which is contributing tospread tightening.

o The consensus estimate for 2009 total issuance remains from $3billion to $4 billion, implying a fourth-quarter issuance rate of$1.2 billion to $2.2 billion.

If this level is attained, the report said, it would represent40-to-55 percent of the issuance in 2009 and would make the fourthquarter the most active of 2009. A fourth quarter accounting forgreater than 40 percent of any year's total issuance has beenreached only once (in 2004).

David Priebe, chairman of Global Client Development, GuyCarpenter, said in a statement, "Given the increase in risk capitaland the performance of the two bonds issued in the thirdquarter--both in terms of pricing and size--a fourth quarter thatwould account for more than 40 percent of the year's total issuanceis not unattainable. Redemptions resulting from cat bonds maturingand a fairly light Atlantic hurricane season should also increasedemand for new issuance."

Chi Hum, global head of distribution, GC Securities, said, "Therecent tightening of spreads has brought the ILS market back, afterthe unusually wide spread we saw in the first half of 2009 had adampening effect on issuance activity, particularly fromreinsurers."