Cedants can’t ignore cat bond pricing
Extremely competitive pricing is tempting yet more cedants to use the capital markets to offset their risks as the pipeline of cat bonds continues to grow.
Experts suggest 2013 will be the biggest year ever for cat bond issuance with as much as $21 billion of bonds outstanding by the end of the year.
The trend is being driven by a lot of older deals maturing this year and very strong demand from investors. This is driving prices down making cat bonds an increasingly cost-effective solution for cedants.
Louisiana Citizens Property Insurance Corporation has become the latest insurer rumoured to be marketing a cat bond. Its CFO was recently reported as saying that the windstorm insurer of last resort would use the cat bond market as part of its 2013 reinsurance renewal as long as the price was right.
It is believed to be seeking $100m of coverage through a bond called Pelican Re 2013-1 – a deal that could complement Pelican Re 2012-1, which it launched last year and has an attachment point of $200m of losses.
Other cedants to recently tap the capital markets include the Turkish Catastrophe Insurance Pool, a state backed insurer which pools catastrophe exposure. Its $100m deal, called Bosphorus 1 Re, would provide a three year source of coverage for earthquakes mainly around the Istanbul region of Turkey.
Meanwhile, Nationwide Mutual is also looking to launch more cat bonds following its recent launch of Caelus Re 2013 Series 2013-1. The second bond in this series will seek $225m of hurricane and earthquake coverage but at a riskier layer of its programme.
