Cat bond issuance fell dramatically in the second quarter of 2011, down 71.8% on 2010 figures.
Global broker Willis said only four new catastrophe bonds, totalling $592m, were issued in the second quarter of 2011. This compares to eight new deals totalling $2.1bn during the same period last year.
Willis Capital Market & Advisory (WCMA) said the fall is attributable to “unprecedented” first quarter catastrophe losses and changes to RMS’s US hurricane model.
But WCMA found that despite the loss activity and low issuance in the second quarter of this year, investors are still keen to invest in cat bonds.
Bill Dubinsky, head of ILS at WCMA, said: “Investors have cash to invest and remain keen on risk in cat bond form, but are somewhat starved of new issuance, particularly non-U.S. wind exposed deals.”
“The cat bond market should see an uptick in deals in the second half of 2011 as investors get more certainty around how the new RMS hurricane model will affect pricing. It will also benefit from the increase in ex-U.S. catastrophe reinsurance pricing,” Dubinsky added.
However, with 71% of outstanding cat bond limit exposed to U.S. hurricane risk of some form, Dubinsky warned that the market’s performance in the remainder of 2011 rests on what happens during the current U.S. wind season.
The low cat bond issuance in 2011 second quarter is surprising following a record $1bn issuance in the first quarter of 2011.
Although only four bonds were issued during the period, the record figure for Q1 showed strong growth on last year’s $650m issuance for the same period.