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Guy Carpenter: Cat Market Continues to Advance in 2nd Quarater 2009

Source: Guy Carpenter

Posted on 28 Jul 2009

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Aided by continued stabilization in the global financial markets, the catastrophe bond market continued to advance in the second quarter of 2009, according to a report issued by Guy Carpenter & Company, LLC, and GC Securities, a division of MMC Securities Corp. In the first half of 2009, nine catastrophe bonds were issued, accounting for aggregate risk capital of $1.38 billion. By comparison, there were 11 transactions in the first half of 2008, resulting in $2.4 billion of issuance. From the first half of 2008 to the first half of 2009, risk capital issued declined 42.5 percent, due in part to pricing conditions.

The report, available at, indicates that six bonds were issued in the second quarter of 2009 (down 25 percent year-over-year, from eight), and risk principal issued is off 54 percent from the $1.75 billion issued during the first quarter of 2008. However, the 2009 second quarter catastrophe bond activity represents a positive rally from the hiatus during the second half of 2008.

In addition a total of $1.59 billion in catastrophe bonds matured in the second quarter of 2009, bringing the year to date total of matured risk principal to just over $2.24 billion. Another $960 million is scheduled to mature in the second half of the year.


* From the first quarter of 2009 to the second quarter of 2009, net catastrophe bond risk capital outstanding fell $779 million (6.5 percent), from $12 billion to $11.2 billion, as maturities outpaced issuances.

• The second quarter of 2009 was the second consecutive quarter in which total risk capital outstanding declined.

• Overall, catastrophe bond risk capital outstanding is currently at mid-year 2007 levels.

PRICING AND CAPACITY • Catastrophe bond spreads were consistent from the first quarter of 2009 to the second – up 25 percent to 50 percent relative to 2008 levels.

• Three of the six transactions in the second quarter of 2009 upsized relative to initial announced placement targets, as the market reacted positively to the relatively high yields.


• Two catastrophe bond transactions are currently planned for the third quarter of 2009: one with European wind exposure and one with U.S. wind exposure.

* Historically, the third quarter has accounted for only 14 percent of risk capital issued, largely a quiet period because of hurricane season and traditional renewal dates.

David Priebe, Chairman of Global Client Development, Guy Carpenter, said "“A number of converging factors could lead to an increase in catastrophe bond activity in the second half of 2009, spurring sponsors who may have postponed issuances in the first and second quarters of the year. These include a continued improvement in the broader capital markets and an increase in risk capacity.

“Conversely, if we see an active hurricane season that generates significant insured damages, or if the financial market conditions do not continue to improve, cat bond spreads will remain high - and could even widen. Absent these two factors, and given the current supply and demand conditions, we expect catastrophe bond spreads to narrow during the second half of 2009."