Benfield Teams up with Merrill Lynch to Offer Cat Bonds

Benfield, the London-based international reinsurance broker, announced that it has “formed a relationship with Merrill Lynch to offer insurers and reinsurers catastrophe (cat) bonds as a form of alternative capital for peak risk exposures.”

Benfield’s bulletin notes: “Recent hurricane losses, likely revisions to cat models and rating agency requirements have created more interest in cat bonds among primary insurers and reinsurers. Cat bonds can serve as a supplement to more traditional forms of reinsurance and retrocession capacity.”

Benfield’s CEO Grahame Chilton further explained: “Following two successive years of record catastrophe losses, many insurers and reinsurers are now exploring alternatives to traditional sources of capacity to protect themselves against losses from natural catastrophes. As a reinsurance intermediary, we are committed to being able to offer our customers the widest possible range of solutions to their risk management needs and this agreement with Merrill Lynch further extends our ability to provide contingent capital outside the conventional reinsurance market.”

Rob Bredahl, Chief Executive of Benfield Advisory, its specialist corporate finance and advisory business, commented: “Investors’ appetite for insurance-related risk has grown over the last two years. We have seen a number of hedge funds move into this space to create insurers and reinsurers as well as participating more directly in the market. Cat bonds provide an excellent platform for a broader range of investors because they are rated securities that lend themselves to quantitative analysis for a more transparent evaluation of risk and reward. Investors have become more comfortable with investing in insurance-linked securities over the past several years as the structure of these securities has evolved, and investors have recognized the benefits of such non-correlated assets.”

Bob Lyons, chairman of Merrill’s Capital Markets and Financing unit sounded a positive note, indicating that Merrill’s “track record of innovative credit structuring and leading global distribution capabilities, coupled with the reinsurance program optimization, basis risk analysis and cat modeling capabilities of Benfield, is a powerful relationship which will provide the most effective cat bond solutions to meet the needs of insurers and reinsurers in today’s business environment.”

Teresa Radzinski, head of Merrill’s Insurance Debt Capital Markets unit seconded that opinion, stating: “Merrill Lynch is a market leader in providing client solutions across the insurance industry, and the agreement with Benfield to offer catastrophe bonds is a natural outgrowth of our success in capital products innovation.”