2013 cat bond issuance passes $7 billion, market hits $20 billion for first time

2013 catastrophe bond issuance has passed the $7 billion milestone for the first time this year with the completion of the latest catastrophe bond from insurer AIG, Tradewynd Re Ltd. (Series 2013-2), which takes the size of the cat bond market over $20 billion.

The completion of Tradewynd Re 2013-2 yesterday, which saw AIG issue its second cat bond in the Tradewynd program of deals featuring some less well-modelled risks, brings the number of completed catastrophe bond and insurance-linked security transactions listed in the Artemis Deal Directory to 32 for the year to date, with a total issuance volume of just under $7.1 billion.

For AIG the completion of Tradewynd Re 2013-2 is a huge success. The insurer has secured $400m of fully-collateralized reinsurance protection for losses from U.S., Caribbean, Gulf of Mexico named storms. U.S., Canada earthquake on a per-occurrence basis using an indemnity trigger.

As with the first Tradewynd cat bond (Tradewynd Re Ltd. (Series 2013-1)), which only achieved $125m of cover for AIG, this deal featured more unmodelled risks and exposure to items such as Gulf of Mexico wind and energy industry assets in the Gulf. This demonstrates that ILS investors are prepared to back transactions containing more unusual, for cat bonds, risk and lines of business which are harder to model.

With Tradewynd Re 2013-2 now settled the size of the outstanding catastrophe bond market has cleared the magic $20 billion figure for the first time, with the addition of the $400m of risk capital from the deal. Based on core data from reinsurer Swiss Re and including every cat bond or ILS deal issued in 2013 that is featured in the Artemis Deal Directory, we now put the size of the outstanding cat bond and ILS market at $20.337 billion.

The chart below shows catastrophe bond and ILS issuance by month for 2013 to date, with December’s figure having now jumped to $550m thanks to Tradewynd Re. With at least another $440m of risk capital to come in December the month could see $1 billion of cat bonds issued.

2013 catastrophe bond & ILS issuance by month

This next chart shows catastrophe bond and ILS issuance by year. 2013 having reached the $7 billion milestone is now clearly the second best issuance year in the markets history. 2013 will not be a record year for volume, however if you took the huge $1.1 billion Merna Re deal out of 2007 then once the rest of December’s cat bonds are completed it would have been a record.

Catastrophe bond & ILS issuance by year

Our final chart shows the size of the outstanding catastrophe bond and ILS market by year, clearly showing that the market is at an all-time high, having grown strongly thanks to growing investor interest in ILS and strong inflows of capital since 2011.

Catastrophe bond & ILS volume issued and outstanding by year - Source: Artemis & Swiss Re

So 2013 has seen one record, in the overall size of the outstanding catastrophe bond and ILS market hitting $20 billion for the first time in its history. Issuance volume for the year comes second only to 2007. 2013 has also seen some interesting transactions, a reasonable spread of perils, some diversification opportunities for investors, some new sponsors, some new risks to the market and some clever adjustments to cat bond structures which make the risk transfer they provide even more useful. All in all a very good year and there’s more to come with three cat bonds still to close!