22 May 2013 News

More cat bonds show depth of demand

Another two catastrophe bonds this week, both covering US windstorm risk, have illustrated the depth of demand from capital markets investors. During marketing, both deals increased in size and tightened on pricing.

The new bonds appear to illustrate the rapidly growing appetite for these deals. Some observers predict the percentage of peak cat risks ceded into the capital markets will quickly grow much faster than the many traditional reinsurers expect with the demand unlikely to falter even following a large event.

And as pricing continues to come down, the economic arguments for cedants using this risk transfer method only continue to grow.

Insurance group Travelers placed a $300 million three-year deal that covers hurricane risk in the north east of the US. Long Point Re III doubled in size from an initial $150 million offering and eventually priced at 4 per cent – down from initial price guidance of between 4 and 4.75 per cent. Swiss Re Capital Markets was the lead structurer and joint bookrunner with GC Securities.

"The transaction demonstrates Swiss Re's strong commitment to serve our clients in transferring natural catastrophe risks to the capital markets and underlines our strong market position in developing innovative and efficient catastrophe bond products,” said Markus Schmutz, head of structuring and origination at Swiss Re Capital Markets.

Cory Anger, global head of ILS Structuring, GC Securities, said: “In addition to the favourable pricing and capacity environment for cat bond sponsors, Long Point Re III demonstrates the continued innovation of the ILS sector to improve and balance structural terms. The Series 2013-1 Notes demonstrate state-of-the-art structural features that allow Travelers to best manage its protection needs with respect to northeast United States hurricanes and available forms of protection.”

Meanwhile, serial cat bond issuer USAA, has increased the size of its latest deal – Residential Reinsurance 2013-1 – by 20 per cent so far from an initial size of $250 million. Meanwhile, pricing has also tightened on all tranches from initial guidance. The deal would be USAA’s 20th cat bond.

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