Guy Carpenter report finds record cat bond activity in 2006

Guy Carpenter & Company, LLC, released its fifth annual joint study of natural catastrophe bond transaction activity and trends and market dynamics which found that the market momentum resulting from the record storm activity of 2004 and 2005 continued into 2006.The Catastrophe Bond Market at Year-End 2006: Ripples into Waves found that activity across virtually all measurable dimensions surpassed previous records by a large margin last year.According to the report, in two years the total annual catastrophe bond issuance has more than tripled. Total issuance in 2006 stood at US$4.69 billion [approximately Cdn$5.54 billion], marking a 136% increase over the previous record of US$1.99 billion [approximately Cdn$2.35 billion] in 2005, and a 311% increase in 2004s issuance of US$1.14 billion [approximately Cdn$1.34 billion].Christopher McGhee, head of Guy Carpenters investment banking specialty practice, said that the long term implications remains to be seen.The explosive growth experienced in 2006 was driven by a number of factors, he said in a statement, including a tightening in capacity, increased costs in the traditional market and model changes all of which are results of 2004 and 2005s heavy storm seasons.Given the relative lack of U.S. hurricane activity in 2006, it is unclear whether the market momentum will continue into 2007, he said.What is clear, however, is that capital markets will continue to play an increasingly important role in risk transfer.