Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Do renewals mean more action for catastrophe bonds?


Aon Re Global have published a ‘what to expect’ guide to the forthcoming mid-year renewals (report available here, PDF file). In it they echo the feelings that the renewal pricing will be favourable for reinsurers as the market continues to soften and the terms and conditions are expected to continue improving.

They say in the report that they expect to see ‘increasing interest in assuming property catastrophe and other insurance risks from capital markets investors through insurance-linked securities, industry loss warranty swaps or collateralized reinsurance transactions at prices comparable to projected decreases in traditional reinsurance costs‘.

The report also states ‘Capacity for cedents continues to grow at a rate that is greater than the growth rate for cedent demand. This trend implies continued softening in the terms and conditions available from the buyers of catastrophe bonds. A substantial majority of the world’s largest property insurers now utilize risk transfer capacity through their sponsorship of catastrophe bond transactions. This trend will continue through 2008 as even more catastrophe bond funds are raised. Cedent motivations continue to include the need to diversify their sources of catastrophe capacity, hold high quality security for high severity events and gain the data and disclosure disciplines that are necessary to access investor capacity. This alternative capacity now represents between 10 and 30% of program capacity for insurers buying more than $500 million of capacity covering peak reinsurance aggregate zones‘.

So will the continued softening mean increased interest in cat bonds this year? The market is expected to be active with the continued need for reinsurers and cedents to diversify their capacity sources. Will the softening contribute to make it another record year?

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