Catastrophe bond risk capital outstanding set to rise

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The catastrophe bond market looks set to grow over the next year as issuance is thought likely to outstrip maturities allowing the total amount of catastrophe bond risk capital outstanding to grow. The market has shrunk since a year ago due to a high level of bond maturities (the class of 2008 cat bonds maturing) and slow issuance due to the market issues we’ve documented over the course of this year. Now, the conditions look better for growth to be seen over the coming year.

The graph below from Guy Carpenters recent 3rd quarter insurance-linked securities market report shows the shrinking market over the last year, but also shows that it had grown (albeit very slightly) by the end of Q3. Cat bond risk capital outstanding rose by $60m from the end of Q2 to the end of Q3, a small but welcome rise.

Catastrophe bond risk capital outstanding

Catastrophe bond risk capital outstanding through 3rd quarter 2011

The current quarter has seen a good deal of issuance, around $1.7 billion worth of cat bonds so far during Q4 (details of all of them in our Deal Directory) and issuance is projected to continue strongly into next year.

With strong issuance and just $2.15 billion worth of cat bond maturities expected by the end of June 2012 we hope to see the overall amount of cat bond risk capital outstanding back up above $12 billion soon (possibly even up towards the record levels seen in 2007/2008).

Guy Carpenter say in their report that they “expect that total risk capital outstanding should trend upwards, potentially significantly, over the balance of 2011 and during the 2012 calendar year.”

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