While the catastrophe bond market as a whole was able to withstand the volatility of 2008, the market experienced steep declines in terms of both dollar issuance and number of transactions, according to a Guy Carpenter & Co. L.L.C. report released Wednesday.
Cat bond issuers brought in $2.7 billion in new and renewal capacity through a total of 13 transactions, but all but two of those transactions came within the first half of 2008. Overall, this represents a 62% drop from 2007's record-setting year of nearly $7 billion in issued risk capital, the report said. In addition, the number of transactions in 2008 dropped 52% compared with the previous year.
Further, the report found that after the heart of the credit crisis occurred in mid-September, several firms that were planning cat bond issuances for the fourth quarter deferred those issuances to the first quarter of 2009. This prompted a 14.5% drop in the total amount of risk capital outstanding to $11.8 billion at year-end 2008, the report said.
Ambiguity in the reinsurance market coupled with a deteriorating financial market spawned the drop in cat bond issuance during the fourth quarter 2008, Guy Carpenter wrote in its briefing. In addition, credit concerns related to the security of counterparties curbed growth.
In the briefing, Guy Carpenter said it expects the cat bond market to bounce back in 2009 as the effects of the credit crisis and financial market constraints are likely to continue, forcing the insurance industry to look to alternative sources of capital.
The New York-based reinsurance brokerage suggests that the catastrophe bond market's resilience may play an important role as insurers manage their portfolios over the coming year.
"We expect to see more transparency and tightened collateral requirements in 2009," David Priebe, chairman of Guy Carpenter's global client development department, said in a statement. "Cat bond issuance activity will eventually rebound as conditions improve, and as an asset class, cat bonds should offer improved utility for both sponsors and investors."
Cat bond issuers brought in $2.7 billion in new and renewal capacity through a total of 13 transactions, but all but two of those transactions came within the first half of 2008. Overall, this represents a 62% drop from 2007's record-setting year of nearly $7 billion in issued risk capital, the report said. In addition, the number of transactions in 2008 dropped 52% compared with the previous year.
Further, the report found that after the heart of the credit crisis occurred in mid-September, several firms that were planning cat bond issuances for the fourth quarter deferred those issuances to the first quarter of 2009. This prompted a 14.5% drop in the total amount of risk capital outstanding to $11.8 billion at year-end 2008, the report said.
Ambiguity in the reinsurance market coupled with a deteriorating financial market spawned the drop in cat bond issuance during the fourth quarter 2008, Guy Carpenter wrote in its briefing. In addition, credit concerns related to the security of counterparties curbed growth.
In the briefing, Guy Carpenter said it expects the cat bond market to bounce back in 2009 as the effects of the credit crisis and financial market constraints are likely to continue, forcing the insurance industry to look to alternative sources of capital.
The New York-based reinsurance brokerage suggests that the catastrophe bond market's resilience may play an important role as insurers manage their portfolios over the coming year.
"We expect to see more transparency and tightened collateral requirements in 2009," David Priebe, chairman of Guy Carpenter's global client development department, said in a statement. "Cat bond issuance activity will eventually rebound as conditions improve, and as an asset class, cat bonds should offer improved utility for both sponsors and investors."
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