The cat bond market is proving resilient against the global economic crisis, according to a report released by Guy Carpenter today.
In a review of the first quarter's activity, Guy Carpenter says three bonds totaling $575m were issued. This is the same number of transactions as in the first quarter of last year, although the value was down 6.5% from $615m.
Catastrophe bond pricing is up 50% year-over-year and remains elevated relative to historical pricing. This is a result of a number of drivers, including the sale of catastrophe bond assets to meet liquidity obligations, distress in other asset classes and rate increases in traditional reinsurance markets.
Guy Carpenter says that overall the insurance-linked securities (ILS) market returned a 1% gain in the first quarter of 2009 and that given the volatility in the broader markets, the ILS market remains a valuable alternative for investors, who appreciate the prevailing return profile and the non-correlation of underlying risk characteristics relative to other asset classes.
The report estimates total cat bond issuance activity for 2009 of $3bn, dependent on market conditions. This would be an 11.1% increase on last year.
David Priebe, chairman of global client development at Guy Carpenter said: "After a fallow period for cat bonds at the end of 2008, we've seen issuance bounce back up to levels that are consistent with the first quarter of 2008. The outlook for the remainder of 2009 is positive, with a strong pipeline of deals in the works. Sponsors are increasingly integrating catastrophe bonds into their risk management plans and leveraging these instruments as strategic tools for moving risk out of carrier portfolios."