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Cat bond issuance picks up with three new bonds coming
Oct 18 (Reuters) - Three reinsurers are looking to sell $250 million of catastrophe bonds this month, taking advantage of competitive pricing in the sector and pent up investor demand, market sources said on Thursday.
The surge in issuance comes as reinsurers look to recapitalise and manage their exposure to expensive natural catastrophes by transferring the risk to capital markets investors. It tallies with broker and investor predictions of a $6 billion year-end issuance total in 2012.
Strong investor demand for cat bonds, stoked by the high returns they offer compared to the other financial assets, has brought down prices, meaning cat bond issuers can achieve their desired risk transfer at a cheaper rate.
Cat bond transactions currently under way include a planned $75 million issue from reinsurer Munich Re through its Queen Street VII Re programme to cover potential claims stemming from U.S. hurricanes and European windstorms.
Reinsurer Swiss Re is looking to sell protection against U.S. hurricane and UK extreme mortality risk through its Mythen Re 2012-2 vehicle, via three classes of risk.
The tranche sizes are unspecified, but sources say the world's second biggest reinsurer is targeting at least $75 million across all three classes - although this will very likely be upsized.
This is the first catastrophe bond to combine natural disaster risk and extreme mortality - the risk of a huge increase in deaths of life insurance policyholders, for example because of a pandemic.
Lastly, French reinsurer SCOR is looking for a $100 million buffer against U.S. hurricane claims and European windstorm risk through a dual-tranche issue via its Atlas VII Re Limited catastrophe bond.
Cat bond activity is usually subject to a seasonal lull in the second half of the year as the market sits out the June-to-November U.S. hurricane season, but the issuers want to take advantage of attractive pricing in the market, say investors.
"The initial sizes of the bonds are likely to increase," said one UK-based ILS investor. "The favourable pricing on the bonds at the moment should encourage further issuance and new issuers to the market."
(To join the Thomson Reuters Insurance Linked Securities Community for more news and analysis, click here) (Reporting by Sarah Mortimer; Editing by Catherine Evans)
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