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Tuesday 10 August 2010
Author: Russell Group

The global catastrophe bond market continues to show positive signs despite a resistance to investment in US wind exposed risks. 

Data in a new report highlighted that eight catastrophe bond transactions totalling $2.05 billion in risk capital were completed in the second quarter of 2010 making it the second most active second quarter on record.

The report by Guy Carpenter and GC Securities found that Despite substantial new issuance, total risk capital outstanding in the catastrophe bond market at the mid-point of 2010 declined by 0.80 percent ($105 million) relative to the end of the first quarter of 2010 and by 5.5 percent ($693 million) relative to year-end 2009.

Although the majority of second quarter issuance included exposure to U.S. wind, leading into what is expected to be an active North Atlantic hurricane season, the current appetite for additional U.S. wind risk was described as “limited”.

“Significant investor appetite remains for other perils, including U.S. earthquake, European wind and Japanese wind and earthquake perils,” added the report.

Total risk capital outstanding fell by $105 million to $11.82 billion, as $2.05 million of new issuance was outstripped by $2.16 billion of maturities. This represents the second consecutive quarter of declining risk capital outstanding.

The report added an additional $1.92 billion of risk capital is scheduled to mature before the end of 2010. The current level of risk capital outstanding is consistent with that of year-end 2008.

Bill Kennedy, Global CEO of Analytics, Capital Markets, Specialty Practices and Advisory, Guy Carpenter said: “The number of catastrophe bond investors continues to increase, as does the size of assets under management. We saw this heightened interest, coupled with very favourable issuance conditions, bear fruit in the second quarter of 2010, as issuance activity remained robust week over week.

“Whether this momentum will continue through the fourth quarter and into 2011 depends on a number of factors, including the Atlantic hurricane season and broader market conditions, but it is fair to say that the catastrophe bond market continues to advance, innovate and welcome new participants – all healthy signs.”