Asset-backed securities players are turning their attention to catastrophe bonds, also known as event- or insurance-linked securities, as the latest emerging wrinkle in the ABS market. Swiss Reinsurance Company hit the market last week with a $40 million offering backed by insurance coverage against hurricane losses in the U.S. and Puerto Rico, and Embarcadero Reinsurance is issuing a $150 million transaction covering earthquake insurance losses in California. Health insurance company Aetna also priced a $150 million transaction, Vitality Re III, during the recent ASF2012 conference in Las Vegas.
“We think the sector is poised to increase materially this year,” Michael Millette, head of structured finance at Goldman Sachs, told SI. Cat bond issuance hit $4.8 billion in 2010 and $4.7 billion in 2011, compared to a market peak of $7 billion in 2007, according to Goldman research. The sector later plummeted to $2.729 billion in 2008, due in part to both the collapse of Lehman Brothers and seasonal circumstances—the market tends to be most active in the first half of the year before hurricane season hits.....