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Catastrophe Risk in the Capital Markets Cat Bonds, Sidecars and Convergence

Catastrophe Risk in the Capital Markets Cat Bonds, Sidecars and Convergence. Goldman, Sachs & Co. June 2006. Executive Summary – Issuance Surged in 2005. Development of this market, accelerated by Hurricane Katrina and regulatory changes, accelerated in 2005

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Catastrophe Risk in the Capital Markets Cat Bonds, Sidecars and Convergence

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  1. Catastrophe Risk in the Capital MarketsCat Bonds, Sidecars and Convergence Goldman, Sachs & Co. June 2006

  2. Executive Summary – Issuance Surged in 2005 • Development of this market, accelerated by Hurricane Katrina and regulatory changes, accelerated in 2005 • Issuance of insurance-linked securities exceeded $7.1 billion, including • $2.3 billion of catastrophe bonds • $1.8 billion of sidecars • $2.5 billion of life insurance securitization • $0.3 billion of auto securitization • 2006 has already seen over $4 billion of issuance completed or in process Goldman Sachs lead-managed Transactions

  3. Catastrophe-Linked IssuanceHistorical Issuance: Outstanding Transactions and Issuance Per Year Total Catastrophe Transactions ($ millions) EXCEL SOURCE copied at 01-Jun-2006 00:27:00 : rmgcat\Cat Book\2006\Cat Book Supporting Materials v.12.xls(Total Outstanding Iss. (ppt))

  4. Catastrophe-Linked IssuancePre Katrina Total Catastrophe Transactions ($ millions)

  5. Catastrophe-Linked IssuancePre and Post Katrina Total Catastrophe Transactions ($ millions) EXCEL SOURCE copied at 01-Jun-2006 00:59:18 : rmgcat\Cat Book\2006\Cat Book Supporting Materials v.12.xls(Q1-Q3 2005 Chart (ppt))

  6. Catastrophe-Linked IssuancePre and Post Katrina Total Catastrophe Transactions ($ millions)

  7. Catastrophe-Linked IssuanceMay 2006 Issuance EXCEL SOURCE copied at 01-Jun-2006 01:00:23 : rmgcat\Cat Book\2006\Cat Book Supporting Materials v.12.xls(2Q 2006 Chart (ppt)) Total Catastrophe Transactions ($ millions)

  8. Catastrophe-Linked Issuance2005-2006 Post-Katrina EXCEL SOURCE copied at 18-Jan-2006 10:13:21 : RMGCAT\Cat Book\January 2006\Cat Book Supporting Materials.xls(Pricing Chart) Total Catastrophe Transactions ($ millions)

  9. Developments in 2006 • Over $3 billion of transactions completed or in the market YTD 2006 (plus over $3 billion of life) • Volume likely to surpass $4 billion by wind season, or more than full year 2005 • Increasing pricing gradients: trigger type, peril, first/second event • Increasing diversity of views of risk • Increasing convergence of cat bond, traditional reinsurance, sidecar, ILW and bank markets

  10. Directions • Continued growth of specialist investors • Development of structured triggers to manage basis risk • Convergence of the retrocessional market • Increasingly integrated primary insurance programs • Convergence of rating agency disciplines • Development of the sidecar and index portfolio sectors • Expansion to additional risks

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