Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

A.M. Best: $3 billion catastrophe bond issuance in second half of 2011 is possible


In an article discussing the catastrophe bond market which was published yesterday, rating agency A.M. Best suggest that $3 billion worth of new catastrophe bond issuance is possible during the second half of the year. With just over $1.5 billion issued during the first half of 2011 the market has some way to go to continue the trend of positive growth this year.

“To eclipse last year’s issuance of about $4.5 billion, a projected amount of approximately $3 billion would have to be issued during the second half of 2011,” said Asha Attoh-Okine, managing senior financial analyst of insurance-linked securities at A.M. Best. “This number may be achievable given that dedicated investors have ample cash to deploy, reinsurance rates are now gradually firming up and insurers could start to look for alternatives from the traditional reinsurance market to cede their cat exposure.”

However he continued to say that if the reinsurance market remained soft and traditional reinsurance and retrocessional cover are cheaper than issuing catastrophe bonds “achieving this number would be a herculean task.”

The test will be the final quarter of the year when, if conditions are favourable, we could see a considerable amount of issuance involving U.S. hurricane risks. It is likely to come down to pricing to some degree, as reinsurance cover will be plentiful and available, however we hear that many potential issuers are looking into cat bonds right now as a way to lock in a source of reinsurance for multiple years. Q3 has got off to a good start with four cat bonds currently marketing and offering investors some opportunities to diversify their portfolios (details on all four can be found in our Deal Directory). There are other sponsors actively working on deals but whether they will come to market soon is as yet unknown.

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