Upsizing insurance-linked security deals is the order of the day

by Artemis on November 27, 2009

What’s the sign of a successful insurance-linked securities issuance? This time last year you would have said just getting to the marketing phase would have been commendable. Then when the market came back to life it was great to get a deal to complete without any major problems. Now, and this has been a trend this year, underestimating investor appetite and being able to upsize the dollar amount of a deal seems to be the new measure of success.

So far this year we’ve seen Eurus II, Parkton Re and MultiCat Mexico all upsize significantly as investors return to the catastrophe bond market with an appetite for risk and once invested to diversify with other deals. That trend is continuing.

Now some of the latest deals are upsizing too. First to complete was Swiss Re’s Vita Capital IV mortality bond which started being marketed at $50m and completed up 50% at $75m (this was a great opportunity to diversify an ILS portfolio into life). Next Flagstone Re’s deal Montana Re which started off at $120m and is now said to be aiming for nearer $175m. Then Swiss Re’s latest foray into the catastrophe capital market Successor X which has had so much interest that they’re now aiming for $120m although it started off at $50m (do you need any more proof that investors are keen on ILS right now?).

It seems that the market is struggling to supply enough risk to meet the investors demand making this a great time to be planning or marketing a deal as they are all being well received. The latest deal to be marketed, SCOR’s $75m Atlas VI Capital, is looking likely to upsize too. Atlas VI is a Euro windstorm and Japanese quake bond and as such will offer investors a rare opportunity to diversify their catastrophe linked portfolios. That’s sure to be well received by investors who are showing such keen interest in the ILS market.

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Boslino November 30, 2009 at 5:36 pm

Given the high spreads on these transactions it’s no surprise that the new issuances are over-subscribed. New transactions are still being placed at spreads higher than their peak post the 2004 and 2005 losses – it’s no wonder that the investor base are filling their boots.

It’s a clear indication that we are not in an equilibrium situation – there is excess supply over demand. Until the spreads being charged on these transactions fall then we won’t see the size of the overall market increase.

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