Cat bond fever

There’s a pretty good industry event coming up in New York in a couple of weeks, which, given recent developments in the market might be particularly interesting (and well attended) this year.

It’s the Insurance- & Risk-Linked Securities Conference put on by the Securities Industry and Financial Markets Assn. (formerly the Bond Markets Assn.). I’ve been fortunate enough to attend the event several times in the past, and I’ve always found it to be a great and informative gathering of all the various key participants in the risk-linked securities marketplace.

Among the topics to be addressed at the April 23 and 24 gathering at New York’s Marriott Marquis are sources of future growth in the insurance securitization market, the use of the capital markets to address non-peak perils, modelling-related issues, triggers and basis risk, risk management of an insurance-linked securities portfolio and the ramifications of government intervention in the insurance industry.

Obviously, there’s more to the insurance- and risk-linked securities market than cat bonds, but the growth in the cat bond market has been dramatic since 2005’s hurricane season, as the market starts to realize the potential some have long seen for the capital markets as a source of reinsurance capacity.

According to a report on 2006 cat bond activity released earlier this year by Guy Carpenter & Co. L.L.C., 2006 saw $4.69 billion in cat bond issuance, a 136% increase over 2005’s previous record issuance of $1.99 billion, and a 311% increase over 2004’s $1.14 billion.

Last year’s cat bond issuance came in 20 different transactions from 15 sponsors, doubling the previous record number of transactions of 10 in 2005 and 1999.

All-in-all, 2006’s cat bond activity offers evidence of  “the broad-based convergence of the traditional and capital markets,” Guy Carpenter concluded, and suggests that the capital markets will continue to develop into an important component of the reinsurance marketplace. With that as the backdrop, the upcoming SIFMA conference in New York should be interesting indeed.


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