Guy Carpenter described the CAT bond market as the most common transaction type for risk-linked securities that are used by insurers and reinsurers, and sometimes by non-insurance companies, to transfer risks, complementing or even becoming an alternative to the traditional reinsurance arrangement.

The brokerage report said the CAT bond market has been showing a steady growth in the last few years. For 2003, eight transactions were completed overall, with three coming from first-time issuers. Since 1997, Guy Carpenter said, 54 CAT bond issues have been completed for total risk limits of some $8 billion.

Last year, there were five separate issuers, with Swiss Reinsurance accounting for three separate transactions. Swiss Re, with Central Reinsurance Corporation from Taiwan, constituted the 2003's reinsurer sponsors. One transaction came from a corporate sponsor, while two originated from insurance carriers.

The Guy Carpenter report also pointed to a continuing trend for larger transactions, with the average issue size reaching a new high of $217 million in 2003, up from $174 million in 2002.

One notable issuance last year was Central Reinsurance Corporation's sponsoring of the Formosa Re Ltd. issuance, the first CAT bond issued for Taiwanese earthquake risk. The year 2003 also had the largest transaction to date, from the three-tranche Zenkoryen Phoenix issue of $470 million.

Looking at perils and geographies, the CAT bond market is dominated by U.S. East Coast hurricane, California earthquake, European winter storm and Japanese earthquake as most securitized.

The Guy Carpenter report also noted that CAT bond costs have generally trended downward during the past year. In certain instances, the report said, "this has meant that catastrophe bonds were competitive in cost with traditional reinsurance."

Commenting on the report, Standard & Poor's Ratings Services director James Doona said the CAT bond market is "an attractive alternative" to traditional reinsurance for issuers.

"What I've seen happen," Mr. Doona told National Underwriter, "is a move toward a more systematic program, and not issuer-specific, and more like a self-registration of notes. The cost has come down. And by doing it as a program, the cost has come down even further."

But still there are plenty of hurdles for CAT bond issuers, Mr. Doona added. He noted that in comparison, the standard reinsurance market is an established market, and "when you do reinsurance, the guy on the other side knows you already and essentially you just make a phone call." But with CAT bonds, the issuer still has to educate the party on the other side about the bond issuance.

What the CAT bond market has going for it is that there is a tremendous amount of capital. "But I don't know if CAT bonds will ever be easy on the issuer as the standard, traditional reinsurance," he observed.

Mr. Doona also commented that many insurers have been looking at CAT bonds but are doing it in "a small, research mode."

"They are not relying on it, but they want to know how to do it just in case capacity dries up or the reinsurance rates go through the roof," Mr. Doona said. He observed that the CAT bond market still represents a low-single-digit percentage in the worldwide CAT reinsurance coverage.