Catastrophe bond market poised for record issuance in 2013: Report
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The catastrophe bond market has shown that it's ready to “transition from adolescence to young adulthood” and could be poised to exceed the annual record for cat bond issuance of $7.0 billion by the end of this year, according to a new report from GC Securities, a division of MMC Securities Corp.
The first-quarter catastrophe bond market update from New York-based GC Securities found that total risk capital outstanding in the cat bond market reached an all-time high of $15.0 billion during the first three months of 2013, up from $14.83 billion at the end of 2012.
The first quarter was the eighth consecutive quarter of growth in risk capital outstanding in the market, GC Securities said, and based on issues scheduled to mature over the remainder of the year and expectations for deals in the pipeline, outstanding risk capital should continue to increase for the rest of 2013.
While projecting that total risk capital outstanding could rise to as much as $19.0 billion this year, the report also said, “Critical factors remain relating to pricing, capacity and terms available in the traditional reinsurance and retrocession markets.”
The breadth of the investor base for catastrophe bonds continues to expand, according to the report.
“Increasing the breadth of an informed sophisticated investor base can only be a good thing for the market's long-term prospects as it increases available capacity without leaving the market susceptible to reckless capital that will support transactions with ill-considered terms,” the report said.
“In general terms, it is safe to say that capacity from alternative markets has never been more competitive, and in some cases it is clearly priced below the traditional market,” the report said.
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