The catastrophe bond market, currently providing somewhere between $16 billion and $18 billion+ of protection dependent on who you ask, could see rapid growth over the next three years. GC Securities, the ILS and capital markets arm of broker Guy Carpenter, projects that it could reach as much as $23 billion by the end of 2016.
Guy Carpenters numbers put the outstanding catastrophe bond market at just over $16.617 billion at the 31st July this year. With $4.767 billion issued in 2013, the outstanding cat bond market has jumped by 12% from $14.836 billion at the end of 2012, impressive growth.
Catastrophe bond issuance and risk capital outstanding 1997 to 31st July 2013 (in USD millions) - Source: Guy Carpenter
The forecast through to 2016, which Guy Carpenter released this morning at the Monte Carlo Reinsurance Rendezvous event, would mean that catastrophe bond risk capital outstanding would have to grow by 38% to hit $23 billion by the end of 2016. That kind of growth would be extremely impressive, as it would mean that the market needs to continue its recent growth rate and grow by over 10% per annum.
With the recent influx of capital into the reinsurance market from alternative sources, a good proportion of which has entered in the form of ILS and catastrophe bonds, Guy Carpenter sees the competitive pricing of cat bonds as key to the markets continued growth. If ILS and cat bonds continue to offer price parity, or more competitive pricing, GC Securities projection for the cat bond market to hit $23 billions seems eminently possible.
More reading:
There are so many reports and commentaries coming out on alternative reinsurance capital and ILS in the run up to and at the Monte Carlo Rendezvous event that we felt it worth highlighting some other reading on the topic, all from the last week or so, which you can find below (most recent first):
– Alternative capital as significant to reinsurance as emergence of Bermuda: S&P
– Demand for alternative reinsurance instruments and ILS to continue: Fitch
– Alternative capital the biggest challenge for traditional reinsurers: Moody’s
– Lloyd’s Nelson warns on ‘systemic’ risk of alternative reinsurance capital
– Broker facilities an opportunity for third-party capital to expand reach?
– Opportunity for reinsurers to learn from ILS: Aon Benfield CEO
– Capital markets investors boost global reinsurer capital to $510 billion (including a useful list of links to many alternative reinsurance capital initiatives that we have covered previously)
– Strong capital inflows bring ILS & cat bond market to new high: Aon Benfield
– Alternative capital a disruptive force in reinsurance: Goldman Sachs
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