Subprime has not hindered new cat bond issuances, says Dan Ozizmir

The new forth quarter issuances of cat bonds have been “well received” said Dan Ozizmir, managing director of Swiss Re's Capital Markets.

This counters speculation that the increasingly popular risk transfer products could feel the sting from the global credit crunch.

“The new issuance in cat bonds has started for the forth quarter and the deals have been well received,” confirmed Ozizmir. Issuances typically occur during the first quarter and towards the end of the fourth quarter of the year. They dry up during the Atlantic hurricane season – although the secondary market continues to be active.

At this year’s annual reinsurance meeting in Monte Carlo there were suggestions that some cat bonds had been “put on ice” as investors waited to see what the fallout would be from the subprime collapse.

But investor appetite is alive and well according to Ozizmir. “We traded cat bonds in the secondary markets in August and September and did not see any impact from subprime.”

“It was heartening to see that,” he continued. “Intellectually we didn’t expect to see [investor appetite waning], but it was good to see it didn’t happen because this is an uncorrelated risk. I think the investors saw that loud and clear and that’s a very big positive for the market.”

“We traded cat bonds in the secondary markets in August and September and did not see any impact from subprime

Dan Ozizmir

Rival heavyweight reinsurer Munich Re agrees. Having just announced the issuance of a $260m Japanese earthquake bond on behalf of the East Japan Railway Company it has seen a positive response.

Board member Dr Thomas Blunck said: "The response to the issue shows that the market for insurance-linked securities has not on the whole been impaired by the uncertainty on the credit markets but continues to be attractive.

“Munich Re will increasingly realise capital market solutions for its clients and continue to transfer risks from its own book onto the capital market if this is appropriate in financial terms."

So how big could the market for insurance-linked securities eventually become? With the threat of climate change and its great potential to cover peak risk, Ozizmir said he thought the ILS market could reach an incredible $300bn-$500bn in ten years.

“If US hurricane risk could be $100bn-$150bn, and half of that was in the capital markets, and you add Euro wind, US quake, Japan quake, life, longevity, motor risk, casualty – if you look at all the different markets of insurance – it’s a very large global market. So there’s plenty of underlying risk and cash flow to support a very large securitisation market. I don’t see why it couldn’t grow to those numbers but it’s tough to have a crystal ball.”