Willis ILS Report: Investors Eager for Cat Bonds Following Light Second Quarter Issuance
New York, NY, July 13, 2011 – Unprecedented natural catastrophe losses in the first quarter of 2011
coupled with changes to U.S. hurricane models contributed to only four new catastrophe (cat) bond issues,
totalling $592 million, in the second quarter of 2011. This is down from the same period
in 2010 when eight new deals, totalling $2.1 billion, were brought to market. The latest Insurance-Linked
Securities (ILS) Market Update from Willis Capital Markets & Advisory (WCMA), part of Willis Group Holdings
(NYSE: WSH), 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.
The quarterly report titled, “The Market Digests a New Hurricane Model Amid Light Issuance Volume”,
found that while the capital markets digested the tragic Japanese earthquake with “relatively little disruption”, the
latest RMS model for U.S. hurricane risk appears to have caused uncertainty among market participants which
impacted the capacity and pricing of second quarter deals.
WCMA reported that during the second quarter, $2.1 billion of cat bonds matured (year-to-date maturities for 2011
are now $3.3 billion), in addition to a $300 million transaction that was a total loss
for investors as a result of the Tohoku earthquake in March. Outstanding catastrophe bond capacity has
therefore reduced by a net $2 billion in 2011 to date, said WCMA, as maturing bond
limits have outstripped new issuance.
Bill Dubinsky, Head of ILS at WCMA, maintained a positive outlook for the sector saying, “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.”
However, with 71 percent 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 latest WCMA report also examines the state of the secondary market and features an interview with
Willis Re Inc. President James Kent on how catastrophe reinsurance brokers view the cat bond market.
Click here to access the full ILS Market Update.
Willis Capital Markets & Advisory, with offices in New York and London, provides advice to insurance and
reinsurance companies on a broad array of mergers and acquisition transactions as well as capital markets
products. Nothing in this communication constitutes any legal or financial advice or an offer or solicitation
to sell or purchase any securities.
Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers
professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public
entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries,
with a global team of approximately 17,000 employees serving clients in virtually every part of the
world. Additional information on Willis may be found at www.willis.com.