Cat bond market to grow

The market should expect several more catastrophe bonds, with Swiss Re’s New York MD Judy Klugman claiming: “Our pipeline is pretty robust,” Bloomberg reports.

In an analysis of the market, Bloomberg says: “The market is recovering after money from cat bonds was invested in asset-backed securities and Lehman Brothers couldn’t meet its commitments to compensate for losses on the holdings. At the same time last year, hedge funds facing a liquidity squeeze had to sell assets, and investors who normally buy new cat bonds were able to spend their funds in the secondary market instead.”

Now US insurers are entering the hurricane season with less financial strength than a year earlier. Policyholder surplus declined 12% last year to $455.6bn as carriers accumulated investment losses, according to the Property Casualty Insurers Association of America (PCIAA), Bloomberg says.

Swiss Re, which is both a buyer and issuer of cat bonds and helped create the market for the securities, traded about $350m in the secondary market in October last year, compared with $40m in the same month a year earlier, Klugman said.

New York-based Assurant said this month agreed to a $150 million cat bond deal. Chubb, Swiss Re, Allianz, USAA, Liberty Mutual and Scor are returning to the market with new cat bonds this year, bringing the industry total to more than $1.2bn, according to Marsh & McLennan.