Convergence Quarterly: Where insurance and the capital markets meet

The insurance-linked securities (ILS) market all but ground to a halt in the latter part of 2008. After years of growth, capped by 2007's $13.7bn record issuance, the market suffered a big setback in 2008 as figures dropped to $3bn.

With the global economy in turmoil it remains to be seen whether the ILS market will bounce back and show that last year was merely a blip or whether the market is dying out.

Cat bonds make up a large chunk of the ILS market and saw a 62% drop in issuance and a 52% drop in transaction count last year compared with 2007, when figures hit a record $7.1bn. Cat bond issuance fell to $2.7bn in 2008.

Running into trouble

With an excess of capacity in the traditional reinsurance market during the first three quarters of the year caused by two quiet catastrophe years, issuance in...