Approx 52% of 2012 catastrophe bonds used PCS data in their trigger

by Artemis on January 8, 2013

The latest firm to publish a report reviewing the 2012 catastrophe bond market is Property Claims Services (PCS), a leading source of data on insured property losses from catastrophes in the U.S. and part of the Verisk group of companies. The report looks back at 2012 from PCS’ perspective and highlights the continuing use of their loss data products which are key to the market in the creation of industry loss triggers for cat bond deals.

PCS’ year-end 2012 catastrophe bond market report is titled ‘Meeting Expectations’ and it says that the market certainly met the expectations that we started the year with, finishing 2012 with $5.9 billion of cat bonds issued. It’s worth noting that PCS only include catastrophe bonds so their numbers do not tally with our $6.339 billion which includes mortality and medical benefit deals.

Twenty-five transactions made up the 2012 issuance of $5.9 billion that PCS include in their report and this was up by 38% from 2011′s $4.2 billion and 22 deals that they recorded. Average transaction size grew in 2012 by more than 20%, from the $191m average in 2011 to $234m in 2012. However PCS notes that there were four transactions sized below $100m showing that sponsors continue to find cat bonds cost-effective for transferring smaller amounts of risk. PCS correctly state that this could be a sign that the market can support smaller carriers risk transfer needs.

Over the course of 2012, insurer and reinsurer sponsors used PCS data in 15 transactions, up 15% from the 13 transactions which featured PCS data and triggers in 2011. The total capital raised using PCS triggers in cat bonds in 2012 reached $3.1 billion, up 11% from 2011′s $2.7 billion. Of every cat bond issued in 2012 approximately 52% of risk capital issued used PCS data within their triggers.

The image below shows PCS trigger usage in 2012′s global catastrophe bond issuance.

PCS trigger use in 2012 global catastrophe bond issuance

PCS trigger use in 2012 global catastrophe bond issuance

For U.S. exposed cat bond transactions PCS triggers continued to dominate and 63% of U.S. peril based risk capital issued in 2012 used a PCS trigger.

The image below shows PCS trigger usage in 2012′s U.S. catastrophe bond issuance.

PCS trigger use in 2012 global catastrophe bond issuance

PCS trigger use in 2012 global catastrophe bond issuance

PCS note that if you exclude the cat bonds issued by public entities, which are typically more suited to indemnity triggers, PCS data was used in around 86% of risk capital issued in 2012 U.S. cat bonds.

In Q4 of 2012 PCS triggers were used in approximately 68% of risk capital issued in the cat bond deals that came to market during the last quarter of the year. Q4 issuance as a whole was down by 1 transaction on 2011, both in terms of total number of transactions issued and also those using PCS triggers.

The report from PCS includes some interesting details on the process PCS goes through to develop its catastrophe loss estimates, a timely subject and well worth reading the report in full for. On the subject of hurricane Sandy PCS plan to issue the next update bulletin in late January. PCS added that demand surge and business interruption are two factors which could affect the resurvey results as these take time to manifest losses after a catastrophe event.

PCS close out their report with a positive comment worth repeating:

The insurance and reinsurance industry remains committed to catastrophe bonds as a form of risk transfer. The next challenge will be to find a way to make the bonds available to the broader industry.

We agree, that is certainly one of the challenges that the market will look to overcome in 2013, with the other being the challenge of broadening cat bond peril scope into new risks and geographies.

You can access the full report from PCS here.

We covered PCS’ last update in an article back in October, so if you want to look back and compare numbers you can do so here.

Read our interview from last year with Gary Kerney from PCS.

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