LONDON Nov 6 Issuance of catastrophe bonds is
set to bounce back sharply from last year's levels, fuelled by
new capital as investors look to boost returns and avoid
exposure to wavering economic growth in the United States and
Three new bonds in the past two weeks have generated a
further $500 million of collateralized protection for reinsurers
Swiss Re, Scor and Munich Re, bringing the current issuance
total up to $5.2 billion so far in 2012.
This exceeds last year's total of $4.3 billion, making
investor estimates of a $6-7 billion year-end issuance total
So-called catastrophe bonds allow insurers and reinsurers to
pass on extreme risks, such as those related to earthquakes or
hurricanes, to financial market investors, and are seen as an
alternative to reinsurance.
Catastrophe bond issuers make regular interest payments to
the bondholders, and, if no catastrophe-related losses are
incurred, return the principal once the notes expire.
In the event of major catastrophe-related claims, however,
the insurer uses the proceeds of the bond sale to absorb some of
Investors such as retirement schemes and hedge funds have
pumped in an extra $3 billion in 2012 to the market - seeing the
bonds as a good way of counterbalancing their exposure to
regular stocks and bonds, which have seesawed violently since
the 2008 financial crisis.
Cat bond issuance totaled just over $7 billion in 2007, and
was at nearly $6 billion in 2008 before falling sharply as the
financial crisis struck.
But the market for cat bonds has since improved as
investors' memories of the financial crisis faded, soothed by
eye-catching yields of between 5-7 percent for many cat bonds.
Swiss Re sold $200 million via two classes of risk to obtain
coverage against North Atlantic hurricane and UK extreme
mortality risk through its Mythen Re programme, the world's
second biggest reinsurer said on Tuesday.
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.
"Swiss Re's innovative multi-peril bond has met strong
investor interest which reflects the continued growing trust in
Insurance-Linked Securities," Matthias Weber, Swiss Re's group
chief underwriting officer, said in a statement.
The $120 million Class A notes have been classed B+ by
rating agency Standard & Poor's and will cover North Atlantic
hurricane and UK mortality risk, while the $80 million Class C
notes - rated B- by S&P, will cover just North Atlantic
The Class A notes complement another cat bond programme
placed by Swiss Re called Vita Capital, which covers mortality
Meanwhile, French reinsurer Scor completed its thirteenth
cat bond deal to date via its Atlas Re special purpose vehicle -
set up in Ireland to sell cat bonds to investors.
Atlas Re VII provides Scor with $60 million of coverage
against U.S. hurricane and earthquakes via its Class A notes,
and 130 million euros worth of coverage from European windstorms
via its Class B notes.
The capital markets division of reinsurance broker Aon
Benfield and BNP Paribas managed the
transaction and the book on the deal, Scor said in a statement
The Swiss Re and Scor deals follow a recent cat bond from
Munich Re, which placed $75 million of risk last week.
Issuance is expected to increase in the last few months of
the year after a seasonal lull in the second half of the year as
the market sits out the June-to-November U.S. hurricane season.