Cat Bond Activity Rebounding After First Half

NU Online News Service, July 27, 3:24 p.m. EDT

Catastrophe bond issuances are down in the first half of 2009 compared to the same time period in 2008, but second-quarter activity represents a rally from an economy-driven slump that began in the second half of 2008, a new Guy Carpenter report said.

The report, "Cat Bond Update: Second Quarter 2009," reveals the second quarter saw six cat bond transactions with $808 million in risk capital coming to market. By comparison, the 2008 second quarter saw eight transactions, with $1.75 billion in risk capital.

But the report said of the second-quarter activity, "The activity represents a positive rally from the hiatus during the second half of 2008."

For the first half of 2009, nine cat bonds were issued, representing $1.38 billion in risk capital, down from 11 transactions and $2.4 billion in the first half of last year.

While third quarters traditionally are quiet for cat bond issuance, the report noted that this year may be an exception. The report stated, "The continuing stabilization of financial markets and a decrease in catastrophe bond spreads...could result in more issuance activity in the second half of the year, particularly for sponsors which had considered issuances in the first and second quarters but deferred their plans because catastrophe bond spreads were considered to be too wide [cat bond protection was considered too expensive]."

Cat bond spreads were up 25-50 percent in the first half of 2009 compared to 2008 levels, noted the report, but factors such as improving capital markets and increased risk capacity could make issuance conditions more favorable to cat bond sponsors.

Two catastrophe bond transactions are currently planned for the third quarter of 2009, according to the report: one with European wind exposure, and one with U.S. wind exposure.