Cat bond market grows in 2004: Guy Carpenter

The global catastrophe bond market grew 17% in 2004, according to a joint study released by reinsurance broker Guy Carpenter & Co. and MMC Securities Corp.
Measuring total outstanding risk capital, yearend 2004 reached US$4.04 billion, compared to US$3.45 billion at the end of 2003. 2004 also represented a dramatic 41% increase over the US$2.86 billion outstanding at 2002 yearend.
Investor demand is at an all-time high, outpacing the supply of bonds brought to market on an annual basis, the report notes. Dedicated cat bond funds are estimated to have capital under management of more than US$3 billion.
Private transactions, where bonds are marketed and sold to one or a few investors, are increasingly popular, although the exact growth is unknown as such private transactions are not announced publicly. The increased investor demand and rising participation in hedge funds may be fuelling this upswing in private transactions, the report speculates.
There are several forces impelling growth in the cat bond market, notes Christopher McGhee, managing director of MMC Securities and head of the investment banking specialty practice at Guy Carpenter. “Given investors’ interest in catastrophe risk, the rising number and cost of natural catastrophes and the heightened scrutiny of reinsurer counterparty credit risk, this growth trend is only expected to continue,” he says.