ILS Intelligence


T


INVESTOR APPETITE FOR CAT BONDS RETURNS


he recent oversubscription to the


Californian Earthquake Association catastrophe bond has signalled the


return of investor demand for catastrophe bond investment opportunities, according to experts.


In a recent statement, ratings agency Moody’s


described a “pent-up demand” from investors for cat bonds, and in particular those that “diversify away from US hurricane exposure”, which is the underlying risk in the majority of cat bonds.


Moody’s also said that it expected “a wave


of catastrophe bond issuance in the wake of another major catastrophe” and that


the


demand for cat bonds could potentially affect reinsurers’ ability to raise their prices.


This increased interest in catastrophe bonds is now expected to continue in the fourth quarter


of 2011, following a sluggish second and third quarter issuance, attributed to a range of factors, including the high degree of catastrophe activity in the first half of the year, according to a recent report by Aon Benfield Securities.


“Events in Japan and New Zealand at the


beginning of the year, and the recent RMS catastrophe model changes, have caused some participants to pause for re-evaluation, but we expect ILS issuance to be strong as we move into the latter half of the year, and especially during the fourth quarter of 2011,” said Paul Schultz, president of Aon Benfield Securities.


Bill Dubinsky, head of insurance linked


securities at Willis Capital Markets & Advisory, agreed, saying that the second half of 2021 should see an increase in cat bond deals. “Investors have cash to invest and remain keen on risk in cat bond form, but are somewhat starved of new issuance, particularly non-US wind-exposed deals,” he said.


“ Investors have cash to invest and remain keen on risk in cat bond form, but are somewhat starved of new issuance, particularly non-US wind-exposed deals.”


AS A LEADING PROVIDER OF COLLATERAL TRUST SERVICES FOR THE INSURANCE LINKED SECURITIES MARKET, YOUR WELLS FARGO ILS TRUST TEAM IS PROUD TO SPONSOR ILS INTELLIGENCE.


O


ver the past 10 years, the Wells Fargo ILS and Reinsurance Trust group has established billions of dollars of trusts used to


collateralise ILS, reinsurance and captive programmes worldwide. The cost savings realised by our clients using the WF Trust in lieu of letters of credit (LOCs) is staggering.


There are many benefits to using the WF Trust in lieu of LOCs to


collateralise such programmes. They include: • Saving between 80 and 98 percent of LOC fees • Keeping corporate credit lines available • Retention of the interest income of assets held in trust • Retention of ownership of the assets in trust • Ease of set-up and renewal


The trust concept is simple. Rather than posting a letter of


credit as collateral, our clients deposit cash or cash equivalents (the same cash that they would likely use to collateralise an LOC) into


a legal trust account where the depositor ‘owns’ the money and the transformer (for ILS deals) or cedant (for reinsurance) is the beneficiary of the trust. From a regulatory and carrier perspective, this satisfies the collateral requirement.


The Wells Fargo ILS and Reinsurance Trust team has the well-


deserved reputation as the most knowledgeable and responsive trust group in the industry. So if you are posting LOCs for ILS, reinsurance or captive programmes, or if you are finding your current trustee less than ideal, consider using the ILS or Reinsurance Trust, and please consider Wells Fargo as trustee.


For more information, please contact Robert Quinn on: Tel: +1 203-293-4394 Email: robert.g.quinn@wellsfargo.com Website: www.wellsfargo.com/insurancetrust


54 | INTELLIGENT INSURER | September 2011


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