Cat bond market grows 42% in 2003

The global catastrophe bond market was up 42% in 2003, with total bond issuance hitting US$1.73, according to research by Guy Carpenter & Co. and MMC Securities Corp. 2002 saw total bond issuance of US$1.22 billion.The average size of transactions also grew, to US$217 million in 2003 from US$174 million in 2002. Last year saw the largest bond transaction thus far, the US$470 million Zenkoryen Phoenix issue. Earthquake risks led the market, including Californian and Japanese exposures, while East Coast hurricane and European winter storm risks were also well represented.Over time, the cost of issuing cat bonds is dropping (this includes coupon to investor and transaction costs), in some cases last year becoming competitive with traditional reinsurance costs, the report notes. Investor interest in the market is growing, with total funds under management set to exceed US$3 billion in 2004. “The expanding and increasingly sophisticated institutional investor base for these securities, combined with the decreasing costs of issuing them, may help drive growth in this market,” says Christopher McGhee, managing director of MMC Securities. He adds, “While bond structures are becoming more standardized over time, we expect innovations to continue as issuers seek to facilitate transactions and new capital enters the market.”