Demand for Cat Bonds at 15-year High

The third quarter of 2013 saw US$1.4bn of non-life catastrophe (cat) bond capacity issued through seven bonds or approximately three times higher than the five-year average and was the highest on record since 1998, according to Willis Capital Markets & Advisory’s (WCMA) latest
‘Insurance Linked Securities’
(ILS) report.

“If fourth quarter issuance remains at a similar level to that of recent years it will be a record year for ILS issuance, surpassing the 2007 record,” said Bill Dubinsky, head of ILS at WCMA, which is part of the insurance broking and risk advisory group Willis.

“Outstanding capacity has now grown in each of the past five years, with the currently outstanding capacity of US$17.3bn representing an all-time high.”

In the report, WCMA explores how some traditional reinsurers are responding to the influx of capital into the reinsurance market by managing increasing amounts of investor capital in funds and special vehicles such as sidecars, as well as sponsoring deals themselves.

“Some investors are encouraging more catastrophe bond issuance so that they can continue to fulfill mandates for liquid investments. Other investors are chasing the illiquidity in collateralised reinsurance as a mechanism to protect themselves from the ruthless price pressure in a well run syndication process.”

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