Cat bond issuance gained momentum in 2007

Cat bond risk capital at the end of 2007 reached US$13.8 billion, a 63% increase over the previously record-setting, 2006-year-end total of US$8.5 billion, according to a Guy Carpenter & Company LLC report.
Cat bond risk capital now accounts for 8% of property limits worldwide and 12% on a U.S.-only basis. Issuance accelerated rapidly over last year, even as rates softened for traditional reinsurance capacity, a Guy Carpenter release says.
“2007 was the year when catastrophe bonds became a fundamental, mainstream vehicle for catastrophe risk management,” said Christopher McGhee, managing director and head of GC Securities.
With US$7 billion in publicly-disclosed, catastrophe bond issuances, 2007 stands as the most active year in the history of the market, the release says.
Publicly-disclosed issuances showed a 49% increase over the record of US$4.7 billion in 2006 and 250% over the US$2 billion issued in 2005.
Since 1997, when the market began in earnest, 116 catastrophe bonds have been issued, with total risk limits of US$22.3 billion. Fifty-two per cent (US$11.7 billion) of that total came in the last two years, the release adds.
“The growth of 2007 was truly 10 years in the making,” McGhee added. “Partially as a result of the difficult post-Katrina circumstances of 2006, the market has come to understand the ability of capital markets to deliver capital quickly and efficiently. At the same time, insurers should be commended for their ability to adapt their perception of their own risk profiles and embrace these powerful new solutions.”