1 September 2011 Alternative Risk Transfer

Investor appetite for cat bonds returns

The recent oversubscription to the Californian Earthquake Association catastrophe bond has signalled the return of investor demand for catastrophe bond investment opportunities, according to experts.

In a recent statement, ratings agency Moody’s described a “pent-up demand” from investors for cat bonds, and in particular those that “diversify away from US hurricane exposure”, which is the underlying risk in the majority of cat bonds.

Moody’s also said that it expected “a wave of catastrophe bond issuance in the wake of another major catastrophe” and that the demand for cat bonds could potentially affect reinsurers’ ability to raise their prices.

This increased interest in catastrophe bonds is now expected to continue in the fourth quarter of 2011, following a sluggish second and third quarter issuance, attributed to a range of factors, including the high degree of catastrophe activity in the first half of the year, according to a recent report by Aon Benfield Securities.

“Events in Japan and New Zealand at the beginning of the year, and the recent RMS catastrophe model changes, have caused some participants to pause for re-evaluation, but we expect ILS issuance to be strong as we move into the latter half of the year, and especially during the fourth quarter of 2011,” said Paul Schultz, president of Aon Benfield Securities.

Bill Dubinsky, head of insurance linked securities at Willis Capital Markets & Advisory, agreed, saying that the second half of 2021 should see an increase in cat bond deals. “Investors have cash to invest and remain keen on risk in cat bond form, but are somewhat starved of new issuance, particularly non-US wind-exposed deals,” he said.

Already registered?

Login to your account

To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.

Two Weeks Free Trial

For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk