Catastrophe Bond Issuance Gap Is Upon Us

Filed under: Deals, Allstate Corp (ALL), Goldman Sachs Group (GS), Travelers Companies Inc. (TRV)

Catastrophe bond capacity is maturing, and not much of it is coming back. In the first quarter, $1.8 billion in cat bond risk capital matured, and only $508 million returned in the form of new issuances, according to Thomson Reuters. This quarter, $2.77 billion is maturing, and the absence of first-time issuers makes it unlikely that the market will replace it all. More than a billion of it was from State Farm's Merna Re transaction. The successor to it has already been issued, cleverly named Merna Re II, at only a fraction of the previous bond.



So far, only three cat bonds have closed this year, with The Hartford (HIG) and Swiss Re (SWCEY) joining State Farm. Of course, we're only two weeks into Q2 and Q1 is normally quiet. Nonetheless, analysts expect action of around $5 billion for the year, which would make 2010 the second most active cat bond issuance year in the history of the market, after 2007, in which close to $7 billion in capital came to market. Meanwhile, there are plenty of bonds maturing in the next few months, including those from Travelers (TRV), USAA, Allstate (ALL) and Swiss Re.

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