Press Releases: Trading Risk | May 6th 2011
Trading Risk | May 6th 2011
“Opaque outlook for shrinking cat bond market”
The cat bond market shrank in the first quarter of 2011 and uncertainty over traditional reinsurance rates?may stall the sales pipeline for the rest of the year, according to GC Securities.
The cat bond market shrank by $223mn in the first quarter, as $1.24bn of maturities outstripped the $1.02bn of new issuance, GC Securities said in its first quarter report on the ILS market.
Despite the drop, first quarter sales were still a record for the traditionally quiet start to the year, breaking the previous record of $615mn placed in Q1 2008. It was also a substantial improvement on the $300mn sold during the same period last year.
However, there is increased uncertainty about the sales outlook for 2011, the investment banking arm of the global broker said.
Some sponsors are taking a wait and see approach, putting pre-wind season bond offers on hold until they see what happens to traditional reinsurance pricing at the 1 June renewals.
One the one hand, GC Securities said recent catastrophe losses should benefit the cat bond market as it makes multi-year collateralised protection look more attractive to potential bond sponsors concerned about their reinsurance arrangements.
But on the other hand, concerns about cat bond market pricing and capacity still remained, the report noted.
Rival Aon Benfield Securities also this week tipped that second quarter sales would decline year on year although it said the ILS market should still achieve growth over the full year.
Reinsurance buyers recognised the benefits of cat bond protection, GC Securities said, and factored in its special features when comparing the price to traditional competitors.
"To the extent the catastrophe bond market, in this particular environment, can demonstrate coordination and a reasonable level of consistency with the traditional market, it would provide a measure of assurance to protection buyers currently contemplating new transactions."
Of the $1.24bn maturing notes, $553mn was exposed exclusively to European windstorm, GC Securities noted. $150mn was exposed to California earthquake, $150mn exclusively to US hurricane and the remaining $385mn was exposed to multiple worldwide perils including US wind, quake, European windstorm and Japan quake.
The cat bond market shrank by $223mn in the first quarter, as $1.24bn of maturities outstripped the $1.02bn of new issuance, GC Securities said in its first quarter report on the ILS market.
Despite the drop, first quarter sales were still a record for the traditionally quiet start to the year, breaking the previous record of $615mn placed in Q1 2008. It was also a substantial improvement on the $300mn sold during the same period last year.
However, there is increased uncertainty about the sales outlook for 2011, the investment banking arm of the global broker said.
Some sponsors are taking a wait and see approach, putting pre-wind season bond offers on hold until they see what happens to traditional reinsurance pricing at the 1 June renewals.
One the one hand, GC Securities said recent catastrophe losses should benefit the cat bond market as it makes multi-year collateralised protection look more attractive to potential bond sponsors concerned about their reinsurance arrangements.
But on the other hand, concerns about cat bond market pricing and capacity still remained, the report noted.
Rival Aon Benfield Securities also this week tipped that second quarter sales would decline year on year although it said the ILS market should still achieve growth over the full year.
Reinsurance buyers recognised the benefits of cat bond protection, GC Securities said, and factored in its special features when comparing the price to traditional competitors.
"To the extent the catastrophe bond market, in this particular environment, can demonstrate coordination and a reasonable level of consistency with the traditional market, it would provide a measure of assurance to protection buyers currently contemplating new transactions."
Of the $1.24bn maturing notes, $553mn was exposed exclusively to European windstorm, GC Securities noted. $150mn was exposed to California earthquake, $150mn exclusively to US hurricane and the remaining $385mn was exposed to multiple worldwide perils including US wind, quake, European windstorm and Japan quake.