Swiss Re Insurance-Linked Fund Management

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Catastrophe bond risk capital outstanding declines in Q3


Guy Carpenter has begun publishing its update on the Q3 2010 catastrophe bond market activity on its blog. Only two transactions came to market during the 3rd quarter increasing risk capital available by just $232m, making it a light quarter although historically in line with previous Q3 issuance.

Outstanding risk capital available in the catastrophe bond market actually declined during Q3 as significant quantities of existing cat bonds matured. Total outstanding cat bond risk capital declined by 7% over the quarter leaving $10.99 billion at quarter end. A deal that matured was State Farm’s $1.06 billion Merna Reinsurance Ltd. and there are further maturities to come during the rest of 2010 and the first half of 2011. This will leave significant capital available to be invested in new issuance. Despite the drop in risk capital Guy Carpenter stress that market sentiment for catastrophe bonds is positive and their popularity as an asset class is clearly on the rise.

The available cash from maturing transactions combined with pricing spreads becoming more competitive is expected to prompt significant issuance across peak, non peak and diversifying perils over the rest of 2010 and into 2011 according to Guy Carpenter. We’re already seeing this during Q4 with issuance picking up and investor appetite growing. By the end of 2010 Guy Carpenter expect total issuance to outstrip 2009 at just over $4 billion.

We recommend you read the Guy Carpenter updates in full (there may be more parts to come):

Catastrophe Bond Update: Third Quarter 2010 – Activity (and Great Expectations) Persists, Part I: Issuance, Redemptions

Catastrophe Bond Update: Third Quarter 2010 – Activity (and Great Expectations) Persists, Part II: Risk Capital Outstanding, Industry Loss Warranties

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