Cat Bond Market Still Poised for Growth

NU Online News Service, Sept. 7, 1:37 p.m. EDT

Investors continue to show faith in the insurance-linked securities market despite a series of catastrophe losses that caused interruption in growth of the catastrophe bond market this year, industry analysts say.

In its annual review of the catastrophe-bond market released last week, Aon Benfield says that for the 12 months ending June 30, the “market again demonstrated its consistent strength and provided sponsors with an attractive alternative to complement their traditional reinsurance purchases.”

Paul Schultz, president of Aon Benfield Securities, says, “Consistency in issuance, including strong participation from repeat issuers, demonstrated the continued reliance of both sponsors and investors on capital-markets capacity. Renewed interest in sidecar structures also demonstrates the flexibility of the ILS market to provide fresh capital following market losses.”

Matthias Weber, head of property and specialty at Swiss Re, discussing the company's own report on the market, says, “Insurance-linked securities are an integral component of our product offering to clients and we are starting to see increasing demand for non-U.S. peak risks.”

As of June 30, the annual issuance volume was “marginally down” at $4.4 billion from $4.7 million for the same period in 2010, says Aon Benfield.

However, outstanding catastrophe-bond volume dropped $1.7 billion to $11.5 billion in 2011, the report says.

The overall decline “was caused by the interruption of issuance in the 2011 second quarter, as well as large maturities of catastrophe bonds issued in 2007 and 2008.”

Despite the earthquake and tsunami in Japan in March and the major updates of the RMS U.S. hurricane and Europe windstorm models that subjected carriers to some major revisions in their assessment of their catastrophe exposures, Weber says investors will continue to actively pursue cat bonds.

“We anticipate a good catastrophe-bond issuance pipeline in the historically-active second half of the year,” he says. “Additionally, we believe the fundamentals are positive for market growth in 2012 and beyond.”