Cat bond market making comeback

by Colleen McCarthy
An uptick in catastrophe bond issuance leading up to today's start of the Atlantic hurricane season is underscoring the strong demand for capacity for U.S. risks, experts say.
The catastrophe bond market—which has made a comeback following last year's financial collapse—has seen seven transactions close so far this year, bringing year-to-date issuance to $1.22 billion, with additional deals being marketed to investors (see box).
Experts estimate that total 2009 cat bond issuance will reach $3 billion.
The latest deal, a $250 million cat bond placed by San Antonio-based USAA Group, is one of three cat bonds that recently were increased in size due to investor demand.
Rising issuance of cat bonds ahead of the hurricane season is not unusual, experts say. However, the most recent transactions have a greater focus on U.S. perils and primarily feature coverage for U.S. hurricanes and earthquakes. One bond, East Lane III issued by Chubb Corp., provides protection against losses exclusively from Florida hurricanes.
In comparison, roughly $400 million of newly issued cat bonds in the first quarter of 2008 covered non-U.S. perils, including European windstorm, Japanese earthquake and other worldwide natural catastrophe risks, according to GC Securities, a New York-based affiliate of Guy Carpenter & Co. L.L.C. Observers say current market conditions, in part, are driving the demand for peril protection via cat bonds, including firming reinsurance rates and constricted reinsurance capacity for U.S. peak-zone perils.

To read the complete article, click here.