LONDON Dec 4 Total issuance of catastrophe
bonds this year should surpass the $3 billion target earmarked
by many market analysts, with four more cat bond deals still to
close before the year's end, according to market sources.
Swiss Re's RUKN.VX Successor X marks the fifteenth
catastrophe bond to be issued in 2009, while French reinsurer
Scor (SCOR.PA) is marketing its Japanese earthquake and European
windstorm at 75 million euros, which is expected to close this
Meanwhile, Swiss Re is said to be marketing its California
earthquake transaction, Redwood XI, and up to five companies are
involved in US Northeast hurricane bond Longpoint Re, according
to a number of market sources.
"To achieve a nearly $3 billion figure in issuance is a
considerable success given the challenges the sector and the
broader economic environment have faced in the last 24 months,"
Michael Halsband, a vice president on the financial institution
structured finance desk at Goldman Sachs, told Reuters.
"Considerable discipline has been brought to the market in
2009, as witnessed by the successful reintroduction of tighter
collateral structures and greater transparency -- both key
elements where the investors and sponsors interests are
One market investor, who did not want to be named, said
there may also be another deal in the market that is "most
likely to cover California earthquake as well," but refused to
give more details.
Currently, there is $450 million of issuance capacity left
in the market for the cat bond sector to hit the target figure
of $3 billion. The close of Multi Cat Mex at $290 million,
Montana Re at $175 million, Vita Capital IV at $75 million and
Successor X at $150 million in the fourth quarter has brought
issuance up to $2.550 billion.
With no cat issuance in the last quarter of 2008, due to the
state of capital markets during the credit crisis, a year end
total of $3 billion is seen as a return to form for the
insurance-linked securities (ILS) sector.
Chi Hum, global head of distribution, GC Securities, Guy
Carpenter, said tighter and more innovative collateral
structures has taken away the credit risk of a transaction.
"The market has been able to structure a treasury collateral
package that essentially takes away credit risk, which is an
extreme solution, but a reaction to the market dislocation last
A new range of products means there is no longer one
approach to collateral -- the total return swap (TRS). The
failure of Lehman Brothers in September 2007, which played a
counterparty role in several cat bonds, highlighted the
potential weaknesses of TRS collateral solutions.
In addition, movements in pricing should encourage a number
of sponsors to come to market in first half of 2010. The
tightening of terms and conditions and continuing discipline in
the structuring of the transactions will allow the market to
continue to stabilise as it matures further.
"Risk placed in the fourth quarter, when compared to
comparable risk placed in the first two quarter of 2009, has
seen pricing come in as much as 300 basis points," added
(Editing by Andy Bruce)
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