A.M. Best predicts continued growth of insurance-linked securities market

The global reinsurance market is stable, and A.M. Best predicts continued growth in the insurance-linked securities market, moderating cyclicality and amplitude in global reinsurance pricing.
In A.M. Bests Global Reinsurance 2006 Market Review researchers note that 2006 set a record for catastrophe bond issuance at $4.7 billion [approximately Cdn$4.95 billion], 135% above 2005s cat bond issuance.
By July, 2007 cat bond issuance was $4.8 billion [approximately Cdn$5.1 billion] and could reach $6 billion [approximately Cdn$6.33 billion] by year-end, depending on reinsurance capacity and prices, researchers suggest.
Sidecar capital was about $4.5 billion [approximately Cdn$4.74 billion] in 2006. Through July, 2007 new capital in this market was only about $1.5 billion [approximately Cdn$1.58 billion] partially due to the expansion of the Florida Hurricane Catastrophe Fund and the general softening of the p&c reinsurance market.
Sidecars are playing the role expected providing capital when markets are hard and returning capital to investors when prices decline, the report says.
A.M. Best expects the convergence of the capital markets and insurance to continue, but the pace will depend on the occurrence of significant catastrophes, as such events tent to cause reinsurance price spikes, which attract new capital.
In addition, A.M. Best expects more growth as institutional investors and hedge funds gain understanding of insurance risks, and depending on whether or not rating agencies fully recognize the transactions in the financial strength ratings of the sponsoring insurers.