Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

2011 catastrophe bond issuance volume “quite exceptional”, says Clariden Leu


For catastrophe bond issuance to reach $4.5 billion by the end of 2011 is “quite exceptional”, says Swiss private banking firm and ILS fund manager Clariden Leu in their most recent managers report. Given the low volume of issuance through the first half of the year, despite a good start in Q1, the fact that the market could equal 2010 issuance is really a good indicator of the appetite that exists for cat bonds from both sponsors and investors sides.

If you’d asked any market participant what they though the final volume of new cat bonds issued during 2011 would be back in July it’s likely they would have said somewhere around $3 to $3.5 billion. The market has really taken off in the last few months, with the second half of the year becoming one of the strongest periods of issuance on record. Clariden Leu say that they expect the robust investor interest in ILS and cat bonds to continue and they too expect a steady flow of new cat bond issuances in Q1 and Q2 of 2012.

In November the secondary market saw a decent amount of trading activity as managers sought to offload some positions to make way for the newly issued cat bonds. Cat bonds maturing next Spring have also been particularly popular according to Clariden Leu. Secondary cat bond market prices are settling down as is their usual habit at this time of year, partly helped say Clariden Leu by the fact that investor appetite is beginning to be satisfied. That’s the first time this year that anyone has suggested that investor appetite may be closer to being satiated and is a good sign for continued growth as investors were, at one point this year, looking outside the market for other opportunities.

The good thing about investors beginning to become satisfied is that it will then open the way for inflows of new investor capital to come into the market and spur investment managers on to more robust fundraising. Many managers have been holding back on fundraising activities in 2011 as there has been concern that the volume of outstanding cat bonds would keep dropping. The strong issuance seen in recent months and a strong forward pipeline should see that trend reverse. Clariden Leu close by saying that they are very optimistic about the ILS and cat bond pipeline moving into 2012.

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