Continued advancement of cat bond market

Nine catastrophe bonds were issued for the first half of 2009, generating risk capital of US$1.38 billion, according to Cat Bond Update: Second Quarter 2009, issued by GC Securities. This is compared to 11 transactions in the first half of 2008, resulting in US$2.4 billion issued, according to the report posted at GCCapitalIdeas.com. Six catastrophe bond transactions were completed in 2009 Q2, with US$808 million in risk coming to market, the update notes. “The number of bonds issued is down 25% year-over-year (from eight), and risk principal issued is off 54% from the US$1.75 billion issued during the first quarter of 2008,” according to the report. Risk capital issued declined 42.5% from the first half of 2008 to the first half of 2009. This is partly due to pricing conditions, the report notes. Although issuances are down from 2008, the cat bond market continues to advance, representing a positive rally from the hiatus during the second half of 2008, according to the report. “The continuing stabilization of financial markets and a decrease in catastrophe bond spreads, however, could result in more issuance activity in the second half of the year, particularly for sponsors which had considered issuances in the first and second quarters but deferred their plans because catastrophe bond spreads were considered to be too wide (i.e., catastrophe bond protection was considered to be too expensive),” the report notes.