Attractive market conditions as a result of strong investor demand resulted in a record issuance of USD 1 billion catastrophe bonds in the first quarter of 2011 in comparison with USD 650 million in the same quarter last year. This is according to the latest Insurance-Linked Securities (ILS) Market Update from the boutique investment banking arm of Willis Group Holdings, the global insurance broker.
The quarterly report titled, “The Market Digests a Major Catastrophe Event”, is produced by Willis Capital Markets & Advisory (WCMA), an adviser to reinsurance companies on capital markets products and mergers and acquisitions.
WCMA stated that the full impact of the Japan earthquake on pricing for new cat bond issues remains unclear, but said that it expects some upwards pressure on risk premium levels for Japan earthquake risks going forward. The report found that at the beginning of the quarter, there was downward pressure on risk premium levels driven by cash inflows into specialist cat funds.
The WCMA report noted that while the first quarter is usually a relatively quiet one for new issuance, the first three months of this year saw four new issues brought to market, all from repeat cat bond sponsors and all exposed to U.S. hurricane risk.
In conclusion, the report found that significant recent loss activity in the traditional reinsurance market has created an opportunity for cat bond investors.
The ability of the market to provide steady or expanded multi-year capacity at consistent risk spreads could stimulate new issuance and help to grow the market, WCMA said.