Catastrophe Bonds Could Break $5 Billion Mark This Year
Catastrophe bonds — short-term, high-yielding bonds linked to insuring against natural disasters — are on the rise. Experts believe they could break the $5 billion mark this year.
By Rosalyn Retkwa
Japan just marked the first anniversary of its devastating 9.0 earthquake and tsunami. Closer to home, in early March, off-season tornadoes wreaked havoc in Indiana, Ohio and Kentucky.
With Mother Nature on the warpath, it might seem like an odd time for catastrophe bonds to be making a comeback, but issuance of these short-term, high-yielding bonds linked to insuring against natural disasters may break the $5 billion mark this year for the first time since 2007, according to a report issued in February by Willis Capital Markets & Advisory, the investment banking arm of the New York City and London-based global insurance broker.
And $5 billion may be a little bit conservative, says William Dubinsky, the head of insurance-linked securities at Willis, noting another estimate from one of the industrys top investment managers, John Seo, the co-founder of Fermat Capital Management of Westport, Connecticut, which has $2.1 billion in insurance-linked assets under management. On March 2 at the Securities Industry and Financial Markets Associations annual conference on Insurance- & Risk-Linked Securities in New York City, Seo said that with $3 billion to $4 billion already committed to the cat bond market in 2012, he had no doubt issuance could hit $7 billion this year. If it does, that would make for a 62.8 percent increase from last years $4.3 billion in the natural disaster category. (There is another type of cat bond linked to life risks like pandemics, but that is a much smaller and less active sector.)....