GC Securities expects catastrophe (cat) bond issuance to come within reach if not exceed the $7 billion record hit in 2007, according to a release from the boutique investment bank.
“Whether this actually comes to fruition will be dependent on cat bond market pricing remaining stable in the context of potentially heavy issuance,” GC said in a report released Tuesday.
GC added that supply will also hinge on non-U.S. peril sponsors bringing deals to market during the rest of the year.
Two cat bonds came out in 1Q13 for a combined $520 million. (For quarterly and annual issuance figures, see below).
The amount of deals outstanding rose $167.5 million, as maturities reached $352.5 million during the same period. The volume of outstanding cat bonds hit an all-time high of $15 billion in 1Q.
“Conservative institutional asset managers have largely accepted catastrophe risk as a component of a mainstream investment strategy,” said Chi Hum, global head of distribution for insurance-linked securities at GC Securities. “The broadening investor base is certainly a positive trend for the long term, as it increases the level of available capacity without leaving the market susceptible to reckless capital.”
Spreads tightened significantly in the first quarter of 2013. GC attributes this largely to the “traditional reinsurance market which has capital constraints for the peak zones typically addressed by the catastrophic bond market has different (higher) capital costs for peak risks.”
The shop added: “It is safe to say that capacity from alternative markets has never been more competitive and in some cases it is clearly priced below the traditional market.”