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Liberty Mutual Issues $225M Cat Bond

Source: Best Wire Services

Posted on 16 Apr 2009

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Liberty Mutual is the latest company to revisit the burgeoning catastrophe bond market.

The company just issued Mystic Re II, a $225 million cat bond issue that will cover Liberty Mutual for earthquake and hurricanes in the United States for three years, said the Bank of New York Mellon, which was appointed trustee and paying agent for the issue.

The Bank of New York Mellon will process principal and interest payments, act as custodian for deposited assets and maintain noteholder records. The bank said it had an 82% market share of the cat bond market at the end of 2008.

The number of cat bonds issued in the first quarter of 2009 was equal to those issued in the first quarter of 2008, which is a significant rebound from last fall. The amount of risk capital issued in the first quarter was $575 million, down 6.5% down from $615 million for the same quarter a year ago, according to a report by Guy Carpenter.

All three transactions issued in the first quarter of 2009 were for U.S. perils only, with $150 million, or 26%, exposed specifically to Florida wind. Catastrophe bond pricing is up 50% year-over-year and remains elevated relative to historical pricing, Guy Carpenter said. This is the result of several factors, including the sale of catastrophe bond assets to meet liquidity obligations, distress in other asset classes and rate increases in traditional reinsurance markets, Guy Carpenter said in its report.

Guy Carpenter is estimating that the total cat bond market will issue $3 billion in bonds this year, depending on market conditions. This would be a 11.1% year-over-year increase in catastrophe bond limits outstanding, and would see 2009 supplanting 2008 as the third-busiest issuance year in the history of the catastrophe bond market.

French reinsurer Scor was the first to launch a cat bond this year. That transaction, Atlas V, provides $200 million in protection for exposures to earthquakes and hurricanes in the United States, including Puerto Rico, Scor said.

After a record-setting 2007, when 27 cat bond transactions raised $6.9 billion, the market slowed in 2008 with just 13 transactions (all but two issued in the first half of the year), which raised $2.7 billion in 2008, according to Guy Carpenter. The year 2008 may have had a 62% drop in issuance volume and a 52% drop in number of cat bonds issued, but it's still the third-busiest year since cat bonds were first introduced in 1997, Guy Carpenter said.