Thursday, 26 July 2012
Cat reinsurance market nears strategic shift as third party providers move in
The catastrophe reinsurance market may be on the cusp of a strategic shift, with third party capital providers set to take on increasing amounts of peak catastrophe risk, according to Willis Capital Markets & Advisory (WCMA).
In its latest Insurance-Linked Securities (ILS) Market Update, WCMA, part of insurance broker Willis, reports that private unlisted vehicles and growing specialist independent catastrophe risk funds will take an ‘increasing share of the catastrophe risk market in collateralised form over the medium term.’
In its Strong Momentum Continues into 2012 Hurricane Season publication, WCMA reports that seven new catastrophe bonds totalling $2.1bn were issued in the second quarter of 2012.
This compares with four deals worth $600m in the same period a year earlier.
The standout transaction of the quarter was Everglades Re for Florida Citizens. At $750m, the two-year deal was the largest single-tranche cat bond ever placed.
Bill Dubinsky, Head of ILS at WCMA, said: “The current market outlook is very encouraging. Reduced risk spreads as a result of strong investor demand and available capital should stimulate increased issuance from sponsors in the future. In the absence of a significant catastrophe, we would expect the total issuance for this year to be in the $5.5 billion to $6 billion range.”
According to the report, outstanding on risk-capacity increased by just over $700m during the second quarter to $14bn.
US hurricane-exposed transactions continue to dominate the non-life market, with 73% of outstanding cat bonds exposed to US hurricane risk of some form.