Predictions are for between $5bn and $6bn new issues in 2008
New issues of cat bonds in 2008 will “perhaps total $5 to $6bn,” said Mark Hvidsten, ceo, Willis Capital markets, in an interview with Global Reinsurance magazine in Monte Carlo on 9 September. “It is likely that the total will be smaller than last year,” he said.
New issues of cat bonds in 2007 hit a record $7bn.
“For certain types of exposure, and given certain financial objectives, ILS [Insurance Linked Securities] is the best answer available, taking into account credit risk,” he said.
Hvidsen acknowledged, however, that the appetite of capital markets was cyclical. “When the reinsurance market is soft, traditional reinsurance is more appealing in a wider range of cases,” he said. “But ILS is here to stay,” he added.
This sentiment was echoed by others at the Monte Carlo Rendez Vous.
“The cat bond market is here to say,” said Sarah Hibler, senior vp at Moody’s Investors Service. “The reason it took off post Katrina is that traditional reinsurance dried up, and what was available was very highly priced. Now there is more capacity in the market and prices are cheaper, people are leaning more towards buying traditional reinsurance,” she added.
Emmanuel Modu, Managing Director and Global Head of Structured Finance for AM Best, said that “New cat bond issuance in 2008 probably will not outpace the 2007 issuance amount of $7.33bn. “Through August 2008, cat bond issuance was approximately $2.73bn, compared with about $5.38bn during the same period in 2007,” he said. He added that many factors were impacting the pricing of catastrophe bonds in 2008, including credit market turmoil as well as the soft reinsurance market.