Two reports on catastrophe bonds show they are heavily weighted toward U.S. hurricane risks. Investors, "keen" on the cat-bond market overall, are eager to place their dollars in other cat-bond categories as well.
Reinsurance broker Guy Carpenter says the percentage of the catastrophe-bond market with exposure to U.S. hurricanes has grown from 38 percent in 2003 to 71 percent.
The broker says the second quarter of this year saw four new catastrophe bonds come to market, totaling just $592 million of new issuance.
Willis Group Holdings, in a report titled "The Market Digests A New Hurricane Model Amid Light Issuance Volume," says that the total from the four catastrophe bonds is in contrast to the prior year's second-quarter transactions that amounted to more than $2 billion.
Bill Dubinsky, head of insurance-linked securities at Willis Capital Markets & Advisory (WCMA), says in a statement, "Investors have cash to invest and remain keen on risk in cat-bond form, but are somewhat starved of new issuance, particularly non-U.S. wind-exposed deals."
He adds, "The cat-bond market should see an uptick in deals in the second half of 2011 as investors get more certainty around how the new RMS hurricane model will affect pricing. It will also benefit from the increase in ex-U.S. catastrophe-reinsurance pricing."
In the report, James Kent, president of Willis Re North America, says that the situation would be helped if the markets offered "some capacity at higher expected loss and smaller limit sizes" in the $5 million to $25 million range.
As far as covered perils, Kent says there could be more done in the way of tornado and hail risk in the United States, "particularly if sold on an aggregate basis; and global flood risks."
He says terrorism would also be a good program, but understands there are modeling issues associated with it that make it difficult to put into a catastrophe bond.
Guy Carpenter says that through 2011, there is a total of $10.6 billion in catastrophe bonds outstanding, down from $12.2 billion at the end of 2010. Guy Carpenter says that during the quarter $1.6 billion of risk capital was returned to investors through maturing cat bonds.
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