ILS Market Set for Busy 2010 After Record Fourth Quarter

January 6, 2010 -- Newark, Calif - Last year saw the most active fourth quarter ever for catastrophe bond issuance, reaching almost $1.1 billion in total volume, eclipsing the previous best fourth quarter by over 75 percent. Risk Management Solutions (RMS) today announced it conducted the expert risk analysis for as much as 70 percent of these bonds. While the second quarter of the year has traditionally been the most active as companies seek coverage before the start of the hurricane season, favorable pricing in the second half of 2009 led more companies to choose insurance-linked securities (ILS) as an alternative to reinsurance before the January 1 renewals.

“We have seen growing appetite for catastrophe bonds as spreads have returned to pre-credit crunch levels and the cost of issuing has dropped by 30 to 40 percent over the last six months,” said Robert Stone, director with the RMS dedicated ILS team, RiskMarkets. “More companies have put their toes back in the water after a slow start in 2009 and we have been engaged to provide expert risk analysis for a broad variety of deals including new and innovative transactions.”

As well as having the most active fourth quarter, 2009 also saw the first excess mortality securitization structured using a probabilistic catastrophe model, which was also unique in covering an existing and ongoing event ― the H1N1 flu pandemic ― which unfolded throughout 2009 and continues to pose an insurance risk. Interest in parametric deals also continues to increase as the RMS Paradex index was also used to structure Atlas VI Capital Ltd and provide SCOR with coverage against losses from Europe windstorm and Japan earthquake.

ILS activity looks set to remain high in 2010 as a record volume of catastrophe bonds is due to mature, much of which was issued in 2007 ― the most active year ever for ILS to date. Of approximately $5billion of bonds due to expire, between 50 to 80 percent is yet to be renewed. “With favorable pricing and ILS attracting the attention of a growing number of investors, market conditions are ripe for companies to reissue and replace the expiring bonds,” commented Peter Nakada, managing director of RiskMarkets at RMS.

 

Editorial Contacts