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Matthew Lerner

Catastrophe bond issuance could be $7B to $8B in 2014: Report

January 29, 2014 - 2:33pm

Catastrophe Bonds


Nonlife non-investment grade catastrophe bond issuance will total between $7 billion and $8 billion in 2014, according to a report issued Wednesday by Willis Capital Markets & Advisory.

A record 29 catastrophe bonds were issued in 2013 for a total new issuance of $7.1 billion, second only to the $7.2 billion in new issuance during 2007, the Willis Group Holdings P.L.C. unit said in its ILS Market Update report.

The $1.8 million of catastrophe bond capacity raised in seven deals in the fourth quarter of 2012 was just barely lower than the $1.9 billion raised in seven deals in the fourth quarter of 2012, while the $18 billion outstanding at the end of 2013 has now grown at a compounded interest rate of 18% since 2000, Willis Capital Markets & Advisory said in a statement.

In its report, Willis estimated that cat bond, collateralized reinsurance, industry loss warranties and sidecar capital totaled $50 billion by the end of 2013.

“2014 may prove to be a pivotal year for the cat bond and sidecar markets. On the one hand, 2013 was a banner year for cat bonds, sidecars, and collateralized reinsurance with $7.1 billion in nonlife cat bond issuance and considerable sidecar activity despite the softening market conditions,” said Bill Dubinsky, head of investment-linked securities for Willis Capital Markets & Advisory, in the statement.

He added, however, that traditional reinsurers are “reacting aggressively to maintain market share by launching pre-emptive quotes to defend previously unassailable positions on the programs of favored clients.”

“The reinsurance industry is in the midst of a gradual transformation as the inflows of third-party capital continue to increase,” said Willis Capital Markets & Advisory CEO Tony Ursano in the statement. “We expect that 2014 will be marked by innovation, seeing new sponsors, new perils and new structures come to market in an effort to meet investors demand for risk.”