The market for catastrophe bonds ("cat bonds") remains dynamic over the last 12 months despite unfavorable elements, as recalled by the professionals attending the annual meeting of reinsurance that is taking place in Monaco.
Over the 12 months, the market for "Cat bonds" - bonds issued by securitization structure to refinance insurance risks related to natural disaster - remains dynamic, both in terms of volume and performance.
Ainsi, au 30 juin 2011, le montant total des émissions de « Cat bonds » Thus, at June 30, 2011, total issues of "cat bonds" over one year amounted 4.4 billion dollars through 24 operations against 4.7 billion dollars for the same period in 2010, bringing to 11.5 billion dollars the outstanding amount for this type of financial instruments. However, the pace of the issuance volume for "Cat bonds" has slowed in the second quarter of 2011.
Two main reasons explain this phenomenon. On the one hand, models for estimating the underlying risk to catastrophe bonds provided by the two world leaders in this field - "Risk Management Solutions (RMS)" and "Air Worldwide Corporation (AIR)" - have substantially revised upwards their estimates of potential losses in case of catastrophic events. On the other hand, models for estimating the risks on catastrophe bonds provided by the two world leaders in this field - "Risk Management Solutions (RMS)" and "Air Worldwide Corporation (AIR)" - have substantially revised upwards their estimates of potential losses in case of catastrophic events. On the other hand, the ardor of investors has been somewhat cooled by the "mega" earthquake with a magnitude of 9 on the Richter, followed by a tsunami that hit Japan last March.
Yet despite the amount of damage caused by the earthquake, estimated at several tens of billions of dollars by the World Bank, only a "Cat Bond" (Muteki Ltd - issued by Zenkyoren) has cost to date to investors the full amount invested (300 million dollars). however, other titles were impacted to a lesser extent. it may well include Vega Capital Ltd. (Issuer: Swiss Re), Montana Re (issuer: Flagstone Montana Reassurance Suisse SA) or Topiary Capital Ltd (issuer: Platinum Underwriters).
Despite this dramatic event that killed nearly 20,000 according to an official report, the Cat Bond index " Aon Benfield All bond " displays an honorable performance of 5.97% over the last 12 months to 30 June 2011.
This will reassure investors but also allowing issuers to consider with more optimism the end of the year, when issuance volumes are expected to raise, after a third quarter generally quiet on the matter, due to the Hurricane season in the U;S. which will run from June 1 to November 30. Moreover, the recent passage of Hurricane Irene on New York city last month is there to remember. However, this has not prevented ERDF, a subsidiary of EDF and manager of public electricity distribution on the national territory, to hedge against the risk of storm in France, to the tune of 150 million Euros, through the issuance of catastrophe bonds (Pylon II Ltd), placed on the market through Natixis bank, in August 2011.
That is the evidence that investor interest in "Cat Bonds" remains strong; It must be said that their decorrelation with other asset classes is an argument of choice, especially in an economic environment very bumpy, as shown by the current volatility in financial markets.
