Despite the infusion of significant new capital, there is a major shortfall in the availability of catastrophe reinsurance capacity in the United States today–a shortfall that will be more apparent during the 2007 renewal season.
The scale of the current capacity crunch is unprecedented. The last major shortage occurred following Hurricane Andrew in 1992. That episode saw the birth of alternative catastrophe products, which today represent almost 10 percent of the catastrophe limits purchased.
Catastrophe bonds are now regularly being used by companies seeking to secure highly-rated capacity at attachment levels that are not available in the traditional market. However, the cost of catastrophe bonds, the time lag involved in issuing them and their lack of flexibility will not always suit everyone's needs.
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