Figures reported by reinsurance broker Guy Carpenter & Co. point to a healthy recovery in the catastrophe bond sector in 2009. The sector saw volumes increase by 25% over 2008.

A total of 18 cat bond transactions in 2009 demonstrated a strong recovery for a market that had stalled during the financial crisis, many experts said.

Issuance volume stood at roughly $3.5 billion at yearend — exceeding the $2.7 billion issued in 2008 but off sharply from the record $7 billion issued in 2007, according to data from Guy Carpenter.

The increase in 2008 levels marks an improvement in cat bond issuance conditions and a stabilization in the financial markets.

The market came to a standstill following Lehman Brothers' collapse, but began its resurgence in February 2009, with nine transactions successfully completed through June 30.

The 4Q09 saw seven bonds issued, five of which were upsized following strong investor demand and improved cat bond pricing in the sector, and accounted for approximately $1.4 billion in issuance.

Guy Carpenter said in its Global Reinsurance Renewals Report that pricing and capacity conditions in the cat bond market were significantly different between the first and second halves of 2009, stating that cat bond pricing was up by nearly 50% compared with early 2008.

However, in the third and fourth quarters, cat bond pricing declined 25% to 40% compared with 2008 and is now tracking with 2007 levels.

 

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