Cat bond boom predicted for Cayman

Vicky Beckett 19/12/2011

The Cayman Islands’ catastrophe bonds market is expected to thrive in 2012 due to the economic crisis and new special purpose vehicle legislation.

Under new legislation the Cayman Islands regulators have created a separate class for special purpose vehicles (SPVs) under the captive arena.

This is expected to encourage the catastrophe bonds market, which the Cayman Islands has dominated since the market’s inception in 1997.

Clayton Price, managing director of Marsh Management Services, the Cayman Islands, said: “From everything I’m hearing in that space, it’s looking like 2012 could be off to a very strong start on the catastrophe bonds when they put them into the SPVs, both here and other locations as well, but especially in Cayman.

“We expect to see that to be a very robust market starting out in 2012.”

Swiss Re announced that 2011 was the second most costly year next to 2005 for catastrophe type losses.

Price says there is no doubt that’s going to have some sort of impact on the market.

Swiss Re reported that in the second quarter of 2011, $742m of catastrophe bonds were issued.

This figure fell to $692m in the third quarter of 2011.

However, by the fourth quarter $4.1bn of the bonds were issued across 2011, with a further $175m expected by the end of December.

Cat bonds and SPVs generally go hand in hand as the traditional cat bond structure involves an insurance company or a reinsurance company (the ‘Sponsor’) establishing a SPV as a bankruptcy remote entity.

The Sponsor pays premiums to the SPV with the SPV acting as a reinsurer of the Sponsor and the SPV raises its capital by the issuance of the cat bond to investors in the capital markets.

Tags: Cat bonds, Catastrophe bonds, Cayman, Clayton price, Crisis, Economic, Insurance, Marsh, Swiss Re

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