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NU Online News Service, Jan, 6 1:223 p.m. EST
The end of 2009 saw the busiest fourth quarter ever for catastrophe bonds with issues exceeding $1 billion, and that high activity level should continue this year, Risk Management Solutions predicted.
According to the Newark, Calif.-based catastrophe modeling firm, the impetus for the 2010 cat bond business is “an unprecedented $5 billion of bonds due to expire and up to 80 percent yet to be renewed.”
RMS, which reported it performed risk analysis for 70 percent of the cat bonds issued in the fourth quarter, said the period saw $1,077,500 billion in total volume compared with the fourth quarter of 2008 when there was no activity..
The company noted that while the second quarter is traditionally the most active for insurers seeking coverage before hurricane season starts on June 1, favorable pricing in the second half of 2009 led more companies to choose insurance-linked securities (ILS) as an alternative to reinsurance before the January 1 renewals.
Robert Stone, director with the RMS dedicated ILS team, RiskMarkets, in a statement said the firm has “seen growing appetite for catastrophe bonds as spreads have returned to pre-credit crunch levels and the cost of issuing has dropped by 30-to-40 percent over the last six months.”
He explained that “more companies have put their toes back in the water after a slow start in 2009, and we have been engaged to provide expert risk analysis for a broad variety of deals including new and innovative transactions.”
RMS said besides having the most active cat bond fourth quarter, 2009 also saw the first excess mortality securitization structured using a probabilistic catastrophe model, which was also unique in covering an existing and ongoing event―the H1N1 flu pandemic.
The company noted that “interest in parametric deals also continues to increase as the RMS Paradex index was also used to structure Atlas VI Capital Ltd and provide SCOR with coverage against losses from Europe windstorm and Japan earthquake.”
Of approximately $5 billion of cat bonds due to expire this year, between 50- and 80 percent is yet to be renewed, RMS related.
Peter Nakada, managing director of RiskMarkets at RMS, commented, “With favorable pricing and ILS attracting the attention of a growing number of investors, market conditions are ripe for companies to reissue and replace the expiring bonds.”
Meanwhile, earlier this week Zurich-based Swiss Re said it had obtained $150 million in catastrophe bond protection for California earthquake risk The company said a transaction with Redwood Capital XI Ltd. would covers a one-year risk period
Swiss Re said it has obtained over $2.1 billion of California earthquake protection through prior Redwood programs since 2001.