Benfield, Merrill Lynch team up to offer cat bonds

Benfield, an independent reinsurance and risk intermediary, has formed a relationship with Merrill Lynch to offer insurers and reinsurers catastrophe (cat) bonds as a form of alternative capital for peak risk exposures.
Recent hurricane losses, likely revisions to cat models and rating agency requirements have created more interest in cat bonds among primary insurers and reinsurers, Benfield noted in a statement posted on its Web site. Cat bonds can serve as a supplement to more traditional forms of reinsurance and retrocession capacity.
“Following two successive years of record catastrophe losses, many insurers and reinsurers are now exploring alternatives to traditional sources of capacity to protect themselves against losses from natural catastrophes,” Benfield CEO Grahame Chilton said. “As a reinsurance intermediary, we are committed to being able to offer our customers the widest possible range of solutions to their risk management needs.
“This agreement with Merrill Lynch further extends our ability to provide contingent capital outside the conventional reinsurance market.”
Rob Bredahl, chief executive of Benfield Advisory, Benfield’s specialist corporate finance and advisory business, commented: “Investors’ appetite for insurance-related risk has grown over the last two years.
“We have seen a number of hedge funds move into this space to create insurers and reinsurers as well as participating more directly in the market. Cat bonds provide an excellent platform for a broader range of investors because they are rated securities that lend themselves to quantitative analysis for a more transparent evaluation of risk and reward.”
According to Bob Lyons, chairman of capital markets and financing at Merrill Lynch: “Merrill Lynch’s track record of innovative credit structuring and leading global distribution capabilities coupled with the reinsurance program optimization, basis risk analysis and cat modeling capabilities of Benfield is a powerful relationship that will provide the most effective cat bond solutions to meet the needs of insurers and reinsurers in today’s business environment.”