Cat Bond Market Grew 42% Reports Guy Carpenter

April 27, 2004

According to findings from a new joint study by Guy Carpenter & Company, Inc. and MMC Securities Corp., the catastrophe bond market experienced substantial growth in 2003, as cat bonds remained an important complement to the reinsurance market.

“Total bond issuance reached $1.73 billion, representing a 42 percent year on year increase from the 2002 total of $1.22 billion,” said the announcement. It also noted that the trend toward larger transactions seems to be continuing as the cat bond market matures. The average issue size was $217 million in 2003, up from $174 million in the previous year. “The largest transaction to date, the three-tranche Zenkoryen Phoenix issue valued at $470 million, also took place in 2003,” the bulletin noted.

“Catastrophe bonds represent a relatively new and important source of capital for insurance and reinsurance companies with large risk transfer needs,” said Managing Director Christopher McGhee, head of Guy Carpenter’s Investment Banking Practice and Managing Director of MMC Securities. “The expanding and increasingly sophisticated institutional investor base for these securities, combined with the decreasing costs of issuing them, may help drive growth in this market.”

Other key findings detailed in the report include the following:
— Bond issuing costs trending downward – In certain cases, catastrophe bonds were competitive in cost with traditional reinsurance in 2003, with issuing costs generally trending downward with respect to both coupon to investor and transaction expenses.
— Investor demand on the rise – The investor base for this asset class continued to increase at a steady pace in 2003, with total funds under management by dedicated catastrophe bonds to exceed $3 billion in 2004.
— Earthquakes ranked as leading risk – California earthquake, followed closely by Japan earthquake, were the perils and geographies most securitized in 2003. East Coast hurricane and European winter storm also accounted for much of the risk capital placed last year.

“It was another promising year overall for the catastrophe bond market, marked by impressive growth and several first-time issuers,” McGhee commented. “While bond structures are becoming more standardized over time, we expect innovations to continue as issuers seek to facilitate transactions and new capital enters the market.”

Copies of the study, “Market Update: The Catastrophe Bond Market at Year-End 2003,” are available for download at For printed copies, contact Guy Carpenter at

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