1 September 2010 Insurance

Cat bond issuance resurges

Eight catastrophe bonds totalling $2.05 billion in risk capital were completed in the second quarter of 2010, making it the second most active second quarter on record, according to a new report issued today by Guy Carpenter & Company, LLC and GC Securities.

The report found continued strong investor demand for new issuance, with conditions for sponsors remaining favourable.

Aon Benfield Securities said that market activity remained high during the year ending June 30, 2010, with 20 new transactions totalling $4.6 billion brought to market, compared to just $1.7 billion across 11 transactions during the 12 months ending June 30, 2009.

According to Aon Benfield’s ILS Indices, ILS products provided a total investment return of 12.85 percent for the year ending June 30, 2010—up from 2.94 percent the previous year. These results are primarily attributable to markto- market gains across all perils.

Paul Schultz, president of Aon Benfield Securities, said: “Over the past year, the insurance-linked securities market has once again demonstrated its importance as a source of risk transfer capacity. The market has grown and evolved in response to a changing global economic environment, maintaining its relevance to both sponsors and investors. Our analysis elaborates on these market characteristics and offers a positive outlook for the future.”

Despite substantial new issuance, however, total risk capital outstanding in the catastrophe bond market at the mid-point of 2010 declined by 0.80 percent ($105 million) relative to the end of the first quarter of 2010 and by 5.5 percent ($693 million) relative to year-end 2009.

Although the majority of second quarter 2010 issuance included exposure to US wind, leading into what is expected to be an active North Atlantic hurricane season, the current appetite for additional US wind risk is limited. Significant investor appetite remains for other perils, including US earthquake, European wind, and Japanese wind and earthquake perils.

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