Some traditional reinsurers have asserted that catastrophe bonds are unreliable in terms of paying claims after major events. A new Standard & Poor’s article rebukes that idea.
“We have explored the claims payment history of cat bonds,” S&P said. “The timeliness of payments is similar to that of payments by traditional reinsurers.”
Catastrophe bonds have only been around for 20 years or so, but their solid payment history “has actually strengthened cat bonds’ ability to pay claims,” Standard & Poor’s asserts. “Cat bonds continue to provide a diversified source of protection to offload cat risk to the capital markets, and thus strengthen the industry’s ability to withstand losses following the next major event.”
Standard & Poor’s came to this conclusion after looking at 13 catastrophe bond issues that made claims payments after covered events. In one case, the reinsured dragged out the loss payment, but the ratings agency said the rest involved timely, efficient payments.
“We saw no evidence that cat bonds lack the ability or willingness to pay claims in a timely manner, which is a strong track record for a market that has been around for only 20 years,” S&P said.
Standard & Poor’s acknowledged the argument that the market hasn’t yet been tested by a major event that would trigger events under multiple cat bonds, but said the results are still telling all the same.
“The table shows that there have been plenty of covered events, and cat bonds have demonstrated their ability and willingness to pay protection buyers,” S&P said.
Standard & Poor’s explains the issue in greater detail in its article “Catastrophe Bonds Have a Short, But Strong Track Record on Claims Payments.” It’s annual Global Reinsurance Highlights” report is coming out in September.
Source: Standard & Poor’s