Guy Carpenter predicts booming cat bond market for 2009 Q4

The catastrophe bond market is poised for an active 2009 Q4, according to a new report issued by Guy Carpenter & Company LLC and GC Securities, a division of MMC Securities Corp.
The report, Cat Bond Update: Third Quarter 2009, posted at www.GCCapitalIdeas.com, concludes that a number of trends are converging that could result in a total of between US$3 billion and US$4 billion of issuance in 2009.
These trends include an increase in risk capital and the recent upsizing of catastrophe bonds in 2009 Q3.
“Given the increase in risk capital and the performance of the two bonds issued in the third quarter – both in terms of pricing and size – a fourth quarter that would account for more than 40% of the year’s total issuance is not unattainable,” said David Priebe, chairman of global client development at Guy Carpenter.
“Redemptions resulting from cat bonds maturing and a fairly light Atlantic hurricane season should also increase demand for new issuance.”
According to the briefing, new risk capital issued in 2009 Q3 rose 28.8% compared with 2008 Q3.
Two transactions, Parkton Re Ltd. and Eurus II Ltd., both closed in July 2009, resulted in US$412 million of new risk capital issued, up from US$320 million during 2008 Q2.
For the first three quarters of 2009, a total of 11 catastrophe bonds have been issued, accounting for US$1.79 billion in risk capital.
“Improvement in global financial market conditions…and advances in the insurance-linked securities (ILS) collateral solutions – coupled with a stronger demand for issuance and the increasing capacity of investors – have resulted in a shift in the ILS market relative to the beginning of 2009,” Guy Carpenter says in a release announcing the report. “Investors are increasingly focusing on capital deployment and stimulating additional primary issuance, which is contributing to spread tightening.
“The consensus estimate for 2009 total issuance remains from US$3 billion to US$4 billion, implying a fourth quarter issuance rate of US$1.2 billion to US$2.2 billion.