ILS and catastrophe bond sector data at mid-year 2012

The latest insurance-linked securities market update from reinsurer Swiss Re, which we covered previously here and here, contains some useful data on the make-up of the ILS and catastrophe bond market at mid-year 2012. The report from Swiss Re gives a good overview of the state-of-the-market and how the active issuance seen in the first half of this year has allowed capital to be put to work for investors.

These graphs show how the market is currently constructed based on data from Swiss Re Capital Markets at 1st July 2012. Note that some percentages may not add up to 100 due to rounding.

Catastrophe bond and ILS capacity by peril or risk

This first graph shows the market broken down by peril in USD exposed to each type of risk. This is a particularly interesting way to look at the market as Swiss Re have allocated multi-peril cat bonds into each of their constituent perils and it shows that the cat bond and ILS market is not as over-exposed to U.S. hurricane as you might think (when you slice it this way). If you look at the market by actual cat bond exposures it shows that the market is around 70% exposed to U.S. hurricanes at the moment.

In their report from July 2011 Swiss Re broke the data down in the same way but with percentages rather than dollar values. At that time they put U.S. wind at 25%. As you can see from this chart it has grown quite considerably in the last year to around one-third of the markets capacity.

Catastrophe bond and ILS capacity by peril or risk (at 1st July 2012, in USD)

Outstanding catastrophe bonds and ILS by collateral solution

Treasury money market funds remain the dominant form of collateral solution used in cat bond and ILS deals. A year ago 51% of outstanding transactions used Treasuries and that has grown by 18% in just a year. The loser here is the steady decline of the total return swap which has been disappearing from the markets landscape. A year ago total return swaps made up 27% of collateral solutions, now just 5% are left. Tri-party repo usage has also declined slightly by 2% in the last year while the use of structured notes has increased from 10% to 16%.

Outstanding catastrophe bonds and ILS by collateral solution (as at 1st Jul 2012)

Outstanding catastrophe bonds and ILS by type of trigger

Cat bond trigger usage has changed in the last year as well as indemnity transactions have become more frequent and parametric trigger usage has declined. One year ago industry index triggers made up 37% of the market, now 40%. Indemnity triggers made up 27%, now grown to 35%. Parametric index triggers made up 23%, that’s dropped by 10% now to 13%. The other trigger types have stayed roughly the same. We do expect to see more parametric cat bond transactions and this is one area that has the potential to increase again as modelling techniques improve and also for new perils that could enter the market.

Outstanding catastrophe bonds and ILS by type of trigger (as at 1st Jul 2012)

Catastrophe bond and ILS deal lead managers year-to-date

Finally this graph shows the lead managers on ILS and cat bond deals during 2012 up to the 1st July. Swiss Re Capital Markets have featured most often as a lead manager this year.

Catastrophe bond and ILS deal lead managers year-to-date (as at 1st Jul 2012)

You can access Swiss Re’s full report in PDF format here.