PCS triggers used in $2.8 billion of catastrophe bond issues in 2013

by Artemis on January 8, 2014

Over the course of 2013 the volume of catastrophe bonds issued which utilised data from Property Claim Services (PCS) within their triggers totalled $2.8 billion, accounting for nearly 40% of risk capital issued.

Based on PCS’ calculation of total catastrophe bond issuance, which only includes natural catastrophe bonds and excludes some privately transacted deals, the total issuance level in 2013 was $7.2 billion (details on every transaction can be found in the Artemis Deal Directory). This near record level of risk capital was issued through 32 transactions and total issuance volume in 2013 was up 23% on the $5.9 billion issued in 2012.

PCS has just published its full year 2013 catastrophe bond market report. Titled ‘Underlying Change’ the report looks at the cat bond issuance in the fourth-quarter and the full-year of 2013, provides insight on the use of PCS data within industry loss index triggers or for catastrophe designation and also covers recent happenings at PCS.

2013 came close to matching the record issuance seen in 2007 but PCS’ report highlights that it is not just the issuance volume that the market should get hung up on. The transactions completed in 2013 show an increased market maturity, according to the report, with developments such as the ‘cat bond lite’ and the participation of mid-market insurers as sponsors occurring in sufficient volume that they cannot be dismissed as merely opportunistic.

PCS states that the cat bond market has shown that it can support growth through more than just large, U.S. peak peril deals. The level of diversity and innovation seen in 2013 looks poised to support broad growth of the market going forwards, according to the report.

The new market dynamics helped to support strong participation for PCS in cat bond issues in 2013. PCS data was used with the triggers of catastrophe bonds ranging in size from $75m to $500m. Particularly interesting in 2013 was the fact that PCS data became more frequently used within the triggers of indemnity cat bonds, as well as the more typical industry loss triggers, as PCS catastrophe loss data began to be more widely used for catastrophe designation purposes.

Three cat bonds in 2013 used data from the PCS Canada service, the most in any single year. In fact 2013 was noteworthy for having the most Canadian risk cat bonds in a single year on record, with any type of trigger.

Five 2013 cat bond sponsors used PCS data for the first time, four of which were index triggered transactions, representing over $1 billion of new cat bond limits brought to the market. PCS says that the expanded use of its data within cat bond triggers in 2013 shows that there is room for new thinking even in index-triggered transactions covering U.S. peak perils.

2013 catastrophe bond issuance and PCS trigger use

2013 catastrophe bond issuance and PCS trigger use

In 2013 PCS data was used within a much more diverse mix of transactions than in 2012. 60% of catastrophe bonds with exposure to Canadian risks used PCS data while four indemnity triggered cat bonds used PCS data for catastrophe designation purposes, including one from a first-time cat bond sponsor.

Of the fourteen cat bonds which used PCS data, the largest was Tar Heel Re Ltd.  at $500m in size and ten catastrophe bonds of $200m or under also used PCS data, showing that smaller transactions continue to appreciate industry trigger deals. Three sponsors completed four cat bonds in 2013 which used PCS data for catastrophe designation, thus benefitting from an independent third-party perspective and protection against moral hazard, representing just over $1 billion of risk capital.

In the fourth-quarter of 2013, PCS counted $1.8 billion of issuance with six U.S. focused transactions coming to market, four of which used PCS data within the trigger, two industry trigger and two indemnity cat bonds. Two of these were first time users of PCS data, Catlin in its Galileo Re Ltd cat bond which used the PCS Catastrophe Loss Index for both the U.S. and Canada and American Modern Insurance Group’s Queen City Re Ltd. deal which uses PCS for catastrophe designation.

Also of note for PCS in 2013 was the first use of its data within a contingent capital transaction, when Swiss Re used an industry loss trigger within its latest contingent deal.

The report from PCS provides some further insight into the trends that it is tracking in the market as well as progress updates on some of its initiatives to increase its activity in and support for the catastrophe bond market. It contains updates 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.

You can download a copy of the full report from PCS via its website.

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

Read our interview from mid-year 2013 with Joe Louwagie, assistant vice president at PCS.

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