Swiss Re Ltd. (SREN) Chief Financial Officer George Quinn said increasing sales of catastrophe bonds will put pressure on reinsurance contract prices as they compete for disaster coverage.
“While the market is supplied with capital in this way, it will put pressure on prices,” Quinn said in an interview in Zurich yesterday. “The returns people could achieve over the last several years in the natural catastrophe market, especially in the U.S., have been very attractive.”
There were 13 catastrophe bond sales in the second quarter, bringing first-half issuance to a six-year high of almost $4 billion, reinsurance broker Aon Benfield said on July 31. Insurers and reinsurers sell catastrophe bonds to help cover their most extreme risks, with the proceeds set aside and paid out in the event of a disaster.
Swiss Re, the world’s second-biggest reinsurer, reported a 5 percent drop in prices for reinsurance contracts renewed in July, a decline driven by the U.S. natural catastrophe business “where the supply of alternative capital is most significant,” the company said yesterday. Rates may remain under pressure this year as more capital is invested in catastrophe bonds, broker Guy Carpenter & Co. said in a report last month.
“Over time, we will see a growth in supply of all forms of capital to the natural catastrophe market, because it simply needs it,” Quinn said.
While buyers risk forfeiting their investment if catastrophe bonds are triggered before they mature, they get a relatively high interest margin for holding the securities.
Munich Re (MUV2) said prices declined about 0.9 percent from a year earlier when the world’s biggest reinsurer renewed about 13 percent of its property-casualty business on July 1.
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