Wall Street Journal: A Safe Haven in ‘Cat’ Bonds

Jun 7, 2012

The following article was published in the Wall Street Journal on June 7, 2012:

A Safe Haven in “Cat” Bonds


By Katy Burne


The forecasts of hurricane season that is less active than usual is increasing investors’ demand for catastrophe bonds, or cat bonds, which insurers use to transfer hurricane risks to investors, who receive regular payments for providing disaster coverage. 

Cat bonds are attractive to investors because of their solid returns and low default rates.  These bonds have become even more appealing because of the volatility of the prices of equity, junk bonds and commodities. 

Data from Goldman Sachs indicate that sales of cat bonds have totaled $3.4 billion so far this year, an increase of more than 100 percent compared with the same period last year. 

Cory Anger, managing director at Guy Carpenter & Co.’s GC Securities unit, reported that on June 6, units for Travelers Cos. closed on a new three year, $250 million cat bond.  Anger said that on May 22 this cat bond had been increased from a planned $150 million deal because of demand. 

Total returns have risen to 2.14 percent year to date, as measured by a benchmark index from Swiss Re, compared with their negative 1.53 percent return during the same period in 2011, after the cat bond market was hit by disasters such the earthquake in Japan.