6th Nov 2013 16:41
LONDON (Alliance News) - Non-life catastrophe bond issuance in 2013 could yet break a record set over five years ago after issuance in the third quarter reporting period was at its highest in fifteen years, according to a new report by Willis Capital Markets & Advisory.
The third quarter saw USD1.4 billion of non-life catastrophe bond capacity issued through seven bonds, in comparison with USD500 million issued through three bonds in the corresponding period in 2012, according to the Insurance Linked Securities report.
On Monday, Willis Capital Market & Advisory said it had structured and placed a USD300 million catastrophe bond transaction sponsored by Catlin Group Ltd, the London-based reinsurer and insurer that operates the largest syndicate at Lloyd's of London.
The USD300 million catastrophe bond transaction will give Catlin protection against a range of catastrophes, including certain storms in the US, earthquakes in the US and Canada, as well as windstorms in Europe for a three-year risk period.
Insurance-linked securities, whose values are largely affected by insurance loss events and have driven increasing convergence between reinsurance and the capital markets, have attracted attention from Lloyd's of London Chairman John Nelson, who in September warned of the need to make sure that the opportunities of new non-traditional capital entering reinsurance should always be priced appropriately to the risk to which it is attached.
The increase in issuance of non-life catastrophe bonds has attracted attention from investors seeking the higher yields they provide, although they do tend to be given riskier ratings by the ratings agencies.
In October, asset manager Schroders PLC launched a bond fund with a focus on investing in catastrophe bonds, amongst other insurance-linked securities, with most of its investments being in regions with a high concentration of insured wealth such as the United States, Western Europe and Japan.
Daniel Ineichen, the fund manager of Schroders' catastrophe bond fund said the catastrophe bond asset class had a, "strong investment case."
"[This asset class combines] attractive returns with a low correlation to other asset classes. The floating rate structure of cat bonds provides protection against rising interest rates, which is a widely acknowledged investor concern," Ineichen said in October.
But investors have been alerted to the fact that interest rates, currently kept at historic lows the Federal Reserve and the Bank of England in order to boost the economy with a cheaper supply of credit, could soon be increased by the central banks as the economy turns the corner following the financial crisis.
By Samuel Agini; [email protected]; @samuelagini
Copyright © 2013 Alliance News Limited. All Rights Reserved.
Related Shares:
SchrodersCastelnau Group