Guy Carpenter, MMC Securities Cat Bond Market Update Sees Increased Growth

Guy Carpenter & Company, Inc., the global risk and reinsurance specialist and a part of the Marsh & McLennan Companies, and its affiliate MMC Securities Corp. announced the release of their joint study of the catastrophe bond market, entitled “The Growing Appetite for Catastrophe Risk: The Catastrophe Bond Market at Year-End 2004.”

According to the report, the cat bond market continued to experience steady growth in 2004 when measured by total outstanding bond principal at year-end 2004 versus year-end 2003. The study reports that total announced outstanding risk capital reached $4.04 billion at year-end 2004, representing a 17 percent increase over the year-end 2003 total of $3.45 billion and a 41 percent increase over the $2.86 billion outstanding at year-end 2002.

“Catastrophe bonds remain an important complement to the traditional reinsurance marketplace,” stated Christopher McGhee, head of Guy Carpenter’s Investment Banking Specialty Practice and Managing Director of MMC Securities. “Given investors’ interest in catastrophe risk, the rising number and cost of natural catastrophes and the heightened scrutiny of reinsurer counterparty credit risk, this growth trend is only expected to continue,”

The report also found that “investor demand, which is at an all time high, now outstrips the supply of bonds brought to market on an annual basis. Dedicated catastrophe bond funds are estimated to now have capital under management exceeding $3 billion. In addition, the study reports that there appears to have been an upsurge in the number of private transactions, where the bonds are marketed and sold to only one or a few investors. Although the exact volume of activity cannot be precisely measured because these transactions are not typically publicly announced, the larger investor base and growing hedge fund participation may have helped make private placements more feasible in 2004.”

Copies of the study, The Growing Appetite for Catastrophe Risk: The Catastrophe Bond Market at Year-End 2004, are available for download at www.guycarp.com. For printed copies, please contact Guy Carpenter at: marketing@guycarp.com.