PCS triggers back 24% more catastrophe bond risk capital in 2013

by Artemis on October 2, 2013

In the first nine months of 2013 approximately $2.1 billion catastrophe bond risk capital issued was based on a trigger which utilises data from Property Claims Services (PCS). This is 24% higher than a year earlier in 2012 when PCS triggers were used in $1.7 billion of cat bond issuance.

PCS has just published its third-quarter 2013 catastrophe bond market report. Titled ‘Broader and Deeper’ the report looks at the issuance of the third-quarter, provides insight on the use of PCS industry loss index triggers and provides details of some new initiative recently launched by PCS as it seeks to expand.

The report begins by discussing issuance for the first nine months of the year, explaining that 2013 has already become the third most active in the catastrophe bond markets history, with a new record for issuance possible by year-end. PCS records more than $5.4 billion of issuance in the first nine months of 2013, which is up approximately 32% from the $4.1 billion PCS recorded over the same period of 2012.

That compares to $5.764 billion we have recorded in the Artemis Deal Directory, but we include one life & health ILS transaction, the recent Atlas IX mortality cat bond as well as a number of smaller private cat bonds we have data on.

The third-quarter saw sponsors issue $1.5 billion of risk capital in catastrophe bond form, according to PCS, this is significantly higher than Q3 2012, which makes it the highest third-quarter issuance on record. Again our Deal Directory number is a little higher for the quarter at $1.68 billion of issuance due to Atlas IX.

Historical Q3 catastrophe bond issuance

Historical Q3 catastrophe bond issuance - Source: PCS report

2013 is already fast approaching the total cat bond issuance seen in 2012, so we are certain to see a higher figure at year-end. The question now is how high. PCS sees $7 billion as easily reachable, which we agree with. Sponsors and brokers we speak with suggest anywhere between 6 and 10 new catastrophe bond deals may be issued by the end of 2013. There may be a question over when deals complete however, as with a busy pipeline the closing dates will be staggered and some may fall in 2014.

PCS suggests in its report that we are now at a stage where future market growth may not be measured by issuance volume but rather by cat bonds ability to broaden coverage to new regions, perils and lines of business. This, PCS says, will be the determinant of maturity as the market begins to demonstrate its ability to support risk transfer outside of the dominant U.S. wind.

Over the first nine months of 2013, issuance was up almost 32% over 2012. The third-quarter issuance brought down the average transaction size slightly from $230m to $216m, largely due to smaller private cat bond or cat bond lite deals. The range in deal size, from $20m up to $500m, clearly shows that cat bonds are not just about big-ticket risk transfer contracts anymore.

Catastrophe bond issuance data for the first nine months of the year

Catastrophe bond issuance data for the first nine months of the year

As we said at the start of this article, PCS trigger use was up by 24% in terms of risk capital issued in cat bond form over the first three-quarters of 2013. The number of transactions issued using PCS triggers was actually static at ten, but the average size of deals issued using a PCS industry loss index trigger grew.

Once again the U.S. dominates the catastrophe bond market in 2013 to date, with 22 of the 25 issuances PCS covers in its report including North American perils.

PCS triggers were used in 3 of the 8 cat bond transactions issued during the third-quarter, so 37.5% of total issuance. That rises to 50% of issuance if you only look at North America, with 6 cat bonds covering North American or Canadian risks. Total issuance in Q3 of 2012 was just 3 cat bonds with $530m of risk capital, compared to the 8 with $1.5 billion of risk capital seen in Q3 2013.

Catastrophe bond issuance data for Q3 2013

Catastrophe bond issuance data for Q3 2013

The report from PCS goes on to provide more detail on some of the recent initiatives that PCS is pushing forwards with, as it attempts to support the growth of the catastrophe bond and ILS market. The report provides some more detail on the PCS initiative to launch an exchange traded catastrophe product with the Cayman Islands Stock Exchange and details of the work being undertaken to expand PCS catastrophe loss index coverage into South Korea.

As ever the PCS third-quarter catastrophe bond market report is well worth reading in full. You can access the full report from PCS here.

Find details of every catastrophe bond issued so far in 2013 in our Deal Directory.

Read our recent interview with Joe Louwagie, the new assistant vice president at PCS.

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

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