Attractive market conditions as a result of strong investor demand resulted in a record issuance of $1 billion catastrophe bonds in the first quarter of 2011, compared to $650 million in the same quarter last year.
This is according to the Insurance-Linked Securities Market Update produced by Willis Capital Markets & Advisory (WCMA), an adviser to insurance companies on capital markets products and mergers and acquisitions.
The first quarter is usually a quiet one for new issuance, however the first three months of this year saw four new issues brought to market, all from repeat cat bond sponsors and all exposed to U.S. hurricane risk, the report said.
According to WCMA, the full impact of the Japan earthquake on pricing for new cat bond issues remains unclear, but the adviser group said that it expects some upward pressure on risk premium levels for Japan earthquake risks going forward.
The report found that at the beginning of the quarter, there was downward pressure on risk premium levels driven by cash inflows into specialist cat funds.
The report found that significant recent loss activity in the traditional reinsurance market has created an opportunity for cat bond investors. The ability of the market to provide steady or expanded multi-year capacity at consistent risk spreads could stimulate new issuance and help to grow the market, WCMA said.