Thursday, 17 May 2012
Cat bond market issued record $1.3bn in Q1 but upward pressure on pricing
The first quarter of 2012 was the most active on record for the global catastrophe bond market with $1.34bn of risk capital issued through eight transactions, according to figures from GC securities, a division of MMC Securities Corp.
Aftermath of the Japanese earthquake and tsunami of last year that caused severe business interruption
However, with the cat bond market attuned to the heavy catastrophe losses in 2011 most transactions priced at, or higher, than the top end of their initial price guidance. This caused upward pressure on pricing.
The $134bn figure exceeded the previous record £1.02bn issued in the same quarter of last year.
“The level of issuance achieved in the first quarter demonstrates that both protection sellers and buyers are seeing strong value in the insurance-linked securities market. Record issuance combined with new perils, structures and investors illustrate the continued growth and maturity of the catastrophe risk asset class," said Chi Hum, Global Head of ILS Distribution at GC Securities.
According to GC Securities this year’s first quarter issuance was ‘significantly’ more diverse than in 2011. In the first quarter of last year all transactions included exposure to US hurricane risk, whereas in Q1 2012 both California and Japanese earthquake perils were marketed on a standalone basis.
Cory Anger, Global Head of ILS Structuring, GC Securities said: "In the first quarter of this year, sponsors sought to lock in capital markets’ capacity for a diverse array of perils and structures in a somewhat uncertain traditional market environment. Capital providers proved up to the task, although with some upward pressure on pricing."
GC Securities also reported that total risk capital outstanding increased by 5.2% in Q1 to $12.77bn from $12.14 bn.
Catastrophe bond redemptions amounted to the equivalent of $711.3m of risk capital.