Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Steady flow of new catastrophe bonds forecast for 2012


The outlook for the catastrophe bond and insurance-linked security market looks strong according to a number of market participants we’ve spoken with. This despite the slowdown in cat bond issuance experienced this year due to a number of large catastrophe events, triggered cat bonds and changes to risk models.

Ratings agency A.M. Best published an article a few days ago suggesting that cat bond issuances could slow due to model changes and catastrophe losses. You can read their press release here. Despite this adversity A.M. Best say about $3.34 billion in cat bonds have been issued during 2011 up to November.

Despite these catastrophes, losses and model changes market participants seem upbeat and are in the main looking forwards to a busy first half of 2012 for new catastrophe bond issuance. There are a number of sponsors expected to return to the market who had delayed their regular issuance of cat bonds during 2011. We’re also expecting at least one more cat bond from the California Earthquake Authority and a possible first cat bond from the Texas Windstorm Insurance Association. One broker we spoke with, who said they had been approached to work on as many as five cat bonds for issuance in the first half of 2012, also suggested we could see a new mortality bond issuance before June next year.

Insurance-linked securities investment managers we’ve spoken with are in the main positive about the prospects for new ILS deals over the next six months. Swiss private banking firm and ILS fund manager Clariden Leu said in a recent report:

Given the low volume of ILS issuance thus far in 2011, and the strong position of sponsors in the current environment of robust investor interest, we are expecting to see a steady flow of new cat bond emissions coming to market – both in Q4 and in Q1 2012.

A number of investment managers we spoke with mentioned that the market looks ripe for a number of new private cat bond deals over the next few months and that they wouldn’t be surprised to see more experimentation with new types of risk in smaller deals. They see a greater appetite (and enquiries) from investors for well modelled and structured ILS type transactions covering a number of new lines of business. Developments such as the new Kalista cat bond platform from Dunamis Holdings could help to stimulate interest in this kind of transaction too.

Finally, broker Guy Carpenter said in a recent presentation that pricing and implications of the new RMS hurricane risk model could be a catalyst for cat bond issuance in the first half of 2012. That’s interesting as it ties in with the sentiment of other market participants who’ve suggested that the initial slowdown this change caused could actually lead to greater issuance as the increased risk profile could make cat bonds more attractive for primary insurers. Guy Carpenter also said in the same presentation that the cat bond pipeline is expected to be active in the first half of next year with up to 10+ deals possible.

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