Cat bond market decreased in 2008, but not at same rate as credit market

The issuance of cat bonds decreased in 2008 amid global financial market turmoil, but it was still the third most active year since catastrophe bonds were introduced in 1997, reports Guy Carpenter & Company, LLC.
In its cat bond market update, Guy Carp notes that in 2008 there were 13 issuances, with all but two occurring in the first half of the year, bringing US$2.7 billion in new and renewal capacity to market in 2008.
After a record-setting year in 2007, cat bond issuance in 2008 fell 62% and 52% in terms of risk capital and number of transactions, respectively.
The report also found that after the events of mid-September 2008, several firms that were planning catastrophe bond issuances for 2008 Q4 elected to defer those issuances to 2009 Q1.
“As a result, the total amount of risk capital outstanding dropped 14.5%, from US$13.8 billion at year-end 2007 to US$11.8 billion at year-end 2008,” a release says.
“Put to the test by the unprecedented circumstances of 2008, the cat bond market proved its resilience as the market absorbed the impact of concurrent financial and property catastrophes,” said David Priebe, chairman of Global Client Development at Guy Carpenter.
“And, while cat bond spreads did increase during the tumultuous days of September, they did not do so at the same rate as the credit markets generally.”