By Mark E. Ruquet, PropertyCasualty360.com
May 14, 2012 • Reprints
NU Online News Service, May 14, 2:35 p.m. EDT
Catastrophe bond activity reached record levels in the first quarter of this year, exceeding last year’s placements by more than $300 million, says a leading reinsurance broker.
Reinsurance broker Guy Carpenter, a subsidiary of Marsh & McLennan Companies, the parent company of insurance broker Marsh, issued a report saying that total global catastrophe bond placements reached $1.34 billion issued through eight transactions.
The total exceeds last year’s record of $1.02 billion for the same period, the report says.
The report was assembled by GC Securities, a division of MMC Securities Corp.
The report says total risk capital outstanding increased by more than 5 percent from $12.14 billion to $12.77 billion.
Catastrophe bond redemptions came to about $711 million in the quarter.
The report also says that bond issuance was “significantly more diverse than the year before” primarily “in terms of types of exposure, event structure and risk-return profile.”
“In the first quarter of this year, sponsors sought to lock in capital markets capacity for a diverse array of perils and structures in a somewhat uncertain traditional market environment,” notes Cory Anger, Global Head of ILS Structuring, GC Securities in a statement. “Capital providers proved up to the task, although with some upward pressure on pricing.”
Chi Hum, Global Head of ILS Distribution, GC Securities adds, “The level of issuance achieved in the first quarter demonstrates that both protection sellers and buyers are seeing strong value in the insurance-linked securities market. Record issuance combined with new perils, structures and investors illustrate the continued growth and maturity of the catastrophe risk asset class.”
Among the insurers sponsoring bonds were Swiss Re and Assurant for three year U.S. hurricane programs totaling close to $200 million. Zenkyoren introduced a $300 million bond for Japan earthquake. The California Earthquake Authority sponsored a $150 million bond. Munich Re secured a $75 million bond for U.S. and European windstorm damage.
Most of the activity occurred in March, the report says, with half of the quarter’s total transacted during this month. The activity was topped with “the long awaited return” of Liberty Mutual with a $275 million bond for U.S. hurricane exposure.
Looking ahead, 2012 could be a record year, the report says, which would mean bond issuance in excess of $7 billion. However, GC Securities is setting its sights at around $5.5 billion in issuance with “significant potential” for more issuance depending upon market conditions.
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