Oakland, Calif.-based EQECAT Inc., an affiliate of ABSG Consulting Inc. and an extreme-risk modeling company, announced that during the first eight months of 2006, it conducted seven risk analysis projects for catastrophe bond transactions totaling $1.9 billion.
“While it is too early to estimate the future issuance of ‘catbonds,’ this year’s increase in market activity appears to be drawing more potential issuers and investors to the sector, providing further risk transfer options for the insurance and corporate markets,” said Rick Clinton, EQECATpresident. During 2005, almost $2 billion in catastrophe bonds were issued, the company indicated.
Catbonds are insurance-linked securities enabling insurers to diversify their risk- capital sources. The bonds enable corporations, insurers, reinsurers and government entities to issue fully collateralized “debt-like” securities that pay the issuer some or all of the proceeds of the issue after the occurrence of damaging natural hazard events, Clinton explained.
Catastrophe bond sponsors in the first eight months supported by EQECAT analyses were: ACE Insurance Group, with Calabash Re as the special purpose issuer; DREWCAT Ltd. as the special purpose issuer for a Gulf of Mexico offshore energy company; FM Global, with Cascadia II Ltd. as the special purpose issuer; Hannover Re, with Eurus Ltd. as the special purpose issuer; and Swiss Re, with multiple special purpose issuers for three transactions, Australis Ltd., Successor Ltd., and Redwood Capital.
The sponsored bonds focused on a range of perils: European winterstorm, North Atlantic hurricane, Gulf of Mexico hurricane, Pacific Northwest earthquake, California earthquake, Japan earthquake, Australia tropical cyclone and Australia earthquake.
Clinton noted that the $950 million Successor issue sponsored by Swiss Re marked the largest single issuance in the 10-year history of the catastrophe bond market and demonstrated the increasing number of capital market investors drawn to this asset class.
“Some of our clients are viewing the capital markets as a multi-year risk transfer alternative to traditional markets, and setting up ‘shelf’ programs to issue subsequent tranches of risk on an as needed basis,” said Dennis Kuzak, senior vice president in charge of alternative risk finance.
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