Willis Report On Booming Cat Bond Market
The catastrophe bond market is expected to enjoy a record year in 2013 with Bermuda benefitting from the international surge of interest in the sector according to Willis Capital Markets & Advisory’s latest “Insurance Linked Securities” [ILS] report.
The year is “is roaring forward with a flurry of cat bond, sidecar, and collateralised reinsurance activity,” said Bill Dubinsky, the firm’s head of ILS.
“Collectively, capital markets insurance capacity significantly outsizes the surplus of the leading non-life reinsurers, excluding Berkshire Hathaway. Meanwhile, almost all major Bermuda reinsurers, except one, have third party capital initiatives in place. We may be witnessing the moment when the capital markets have moved from the sideshow to the main tent,” he said.
The first quarter of 2013 saw $1.6 billion of new issuance non-life capacity marketed through five catastrophe bond transactions, including three transactions marketed in 1Q13 and closed at the beginning of the second quarter.
This compares with eight deals and a total of US$1.3 billion in new non-life capacity in the first three months of 2012.
The new capacity is coming from two sources: new inflows to existing ILS specialists coupled with the return of generalist investors, according to the report.
Earlier this month Appleby partner Brad Adderley said the expanding market for catastrophe bonds was a “huge hot topic in Bermuda” at the moment.
“Bermuda has been trying to grow its ‘cat bond’ market because the ‘mousetrap’ that we had 12 years ago wasn’t as efficient as in other jurisdictions, especially the Cayman Islands, then subsequently in Ireland,” he said in an interview with an international business journal. “We, as a jurisdiction, were willing to have all of the other work in the world but we didn’t pay as much attention as we should have to cat bonds.
“We’ve come up with a new mousetrap called ‘special purpose insurers’ which has created an efficient, sensible, regulated vehicle for cat bonds to such a degree that: one, our aim is to ensure all Bermuda sponsors who use or issue cat bonds use Bermuda; two, that sponsors who had previously used Ireland move to Bermuda; and, three, that all new issuance – new market players in cat bonds – that Bermuda gets a fair share of those. You have to understand, Bermuda’s market share in cat bonds three years ago was zero, and it’s grown substantially since then.”
Willis Capital Markets & Advisory is part of the global risk advisor, insurance and reinsurance broker Willis.
