Barclays Capital launches catastrophe bond issuance platform

by Artemis on October 3, 2011

Barclays Capital have today announced the launch of a program which aims to streamline issuance of catastrophe bonds and insurance-linked securities while also lowering transaction costs and barriers to entry for issuers. The platform, which is an extension of Barclays Capital’s event-linked swaps business will seek to efficiently and cost-effectively allow for transfer of natural event risk to the capital markets.
Barclays Capital say that the program is “Designed to transfer event-linked risks seamlessly to the capital markets with lower transactional costs than comparable securitization structures.” It should serve as a complement to the existing catastrophe bond market, they say, allowing investors to access opportunities which were previously only available in OTC form. Their announcement cites the growing investor interest in insurance-linked securities, so its likely that Barclays Capital see this new platform as a way to allow investors to access the asset class more simply while at the same time lowering issuance costs for sponsors.

“Capital markets-based solutions provide our clients with an attractive alternative to traditional sources of risk transfer. Corporates and (re)insurers in particular are committed to accessing the capital markets and are finding that these alternatives allow them to deliver upon their enterprise risk management objectives and, where applicable, demonstrate to rating agencies their ability to use a range of risk mitigation Techniques,” said Daniel Brookman, Head of Event-Linked Products at Barclays Capital in New York.

John Seo, Managing Principal at Fermat Capital Management LLC, one of the largest investors in the event linked asset class said, “We see the program as a useful complement to other ILS risk transfer channels. The program is a significant development for the market because it provides a new, high quality access point for ILS risk transfer. We particularly like this facility because it gives investors access to a broader range of opportunities in thoroughly documented form.”

So Barclays Capital are going to try to open up catastrophe bonds to new classes of issuers and investors through this facility. The platform will allow for transactions of any size, both smaller and larger than the $150m which Barclays Capital say is typical of cat bonds. Transactions can also be executed on a private or publicly disclosed basis, depending on the preferences of counterparties involved.

The flexibility in size of cat bond, public or private nature of transactions and lower issuance costs are sure to be attractive to insurers and corporates alike and this program is definitely one to watch. If corporates and smaller primary insurers embrace this platform it could become active very quickly and introduce new participants to the cat bond market. If Barclays Capital’s new platform takes off and gains traction bringing new issuers to the market, that should in turn attract new investors seeking to try out the asset class, this should have benefits for all cat bond market participants as it further raises the profile of the markets.

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