Catastrophe bond market active in first quarter: Willis
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NEW YORK—Investors bought larger amounts of catastrophe debt during the typically quiet first three months of 2011, the boutique investment banking arm of London brokerage Willis Group Holdings P.L.C. said in a statement Tuesday.
At the beginning of the year, catastrophe bond prices experienced “downward pressure” as investors put more money into the market, Willis Capital Markets & Advisory found in a report. While noting that the full impact of Japan's March 11 earthquake on the market remains unclear, Willis said it expects some “upwards pressure” on the price of Japanese earthquake risk exposure going forward.
Investors bought four catastrophe bonds amounting to $1 billion during January, February and March, compared with $650 million in the same period last year, Willis said.
Largest deal
The largest deal was the Chubb Group of Insurance Cos.' East Lane Re IV, which provided $475 million of coverage against hurricanes, earthquakes, thunderstorms and winter storms in the northeastern U.S. The new debt replaced expiring portions of existing debt coming off risk prior to the 2011 wind season.
Munich Reinsurance Co., Hartford Financial Services Group Inc., and Swiss Reinsurance Co. Ltd. also issued bonds early this year, Willis said.
All the deals were from repeat catastrophe bond sponsors and exposed to U.S. hurricane risk. “It is likely that second quarter issuance will also be dominated by hurricane exposure as we move toward the 2011 wind season,” Willis said.
Opportunity for investors
The recent losses among those who provide insurance to insurers has created an opportunity for investors in the catastrophe bond market, which can boost the industry's capacity to write new business. This could spur more bond deals and “help to grow the market,” Willis said.
The report, “The Market Digests a Major Catastrophe Event,” is available at www.willis.com/Documents/Publications.
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