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One man’s catastrophe is another’s fortune

CATASTROPHE BONDS

Two new issues in as many weeks ranks as a flurry of activity in the usually slow-moving world of catastrophe bond securitization. But does it herald a boom in deal flow?


As Euromoney pointed out in January, the new-issue climate for cat bonds - which aim to offer an alternative to the traditional reinsurance of catastrophe risk and a new source of capacity to the insurance industry by repackaging risk and selling securities to capital market investors - could hardly be better.


Although spreads on cat bonds have widened by around 100bp since September 11, the price increase has been nothing in comparison with the rise in reinsurance rates.


As a result of the World Trade Centre attacks, but also as part of the industry cycle, insurance and reinsurance rates have risen by some 30% across the board. In some cases they have multiplied several times.


As a result the capital markets have started to offer competitive pricing against the traditional reinsurance market. And investment bankers are predicting that 2002 could be the breakthrough year for catastrophe securitization.


It is not the first time that such a claim has been made.






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