Expect $2.5B to $3B of catastrophe bonds in Q4 2014: Paul Schultz, ABS

Catastrophe bond and insurance-linked securities (ILS) investors and investment managers will be delighted to hear that Aon Benfield Securities CEO Paul Schultz believes the primary ILS issuance market is going to bounce back strongly in the fourth-quarter.

After one of the slowest third-quarters on record in the ILS and cat bond market, with just $364m of new catastrophe bonds recorded in Q3 in the Artemis Deal Directory (download our Q3 2014 market report for more details), investors and ILS managers will be delighted to see that the most active broker in the ILS & cat bond structuring world foresees a very strong pipeline of new deals in the coming weeks.

According to this article from A.M. Best, Schultz recognised that Q3 2014 issuance was among the lowest quarters on record, but he cautioned against reading too much into this and said that he expects cat bond & ILS issuance levels to bounce back very strongly in the fourth-quarter.

“It’s an interesting dynamic where we’re certainly seeing more activity generally in the market, but the third quarter of this year was very light, even on a historical basis,” Schultz told A.M. Best.

However, Schultz said that he forecasts a very respectable $2.5 billion to $3 billion of new catastrophe bond and ILS deals for the fourth-quarter of 2014, numbers which if reached would take the annual issuance figure for 2014 well into the record books.

However, we’d imagine that there is a good chance that at least some of these deals will roll-over into the first-quarter of 2014, as has been seen in recent years, so the total figure for 2014 may still come a close second to 2007.

Cory Anger, managing director and global head of ILS structuring at GC Securities, told A.M. Best that while Q4 would see an active period of issuance she foresees some of the upcoming deals moving into the first-quarter of 2015; “Based on the timing of sponsors making decisions.”

If sponsors are slower getting their new deals moving they could end up hitting the market at a time when there are numerous cat bonds books being marketed, which typically would result in some books running for longer than expected and some deals moving into the following year. The brokers may also advise their sponsoring clients to come to market a little later in order to miss a rush of deals trying to get completed before year-end. This could result in a busy Christmas for ILS investors and managers.

However, Anger said that 2014 could still see a record for ILS and cat bond issuance, explaining to A.M. Best; “I think we have a really good chance of exceeding the all-time issuance.”

It’s encouraging for investors and managers to hear that two people who will have a very good view of the ILS and cat bond forward pipeline are forecasting strong issuance through the rest of the year and into 2015. With significant sums of maturities coming up the ILS market is going to need to see strong primary issuance in order to recycle some of that capital.

$2.5 billion to $3 billion of new catastrophe bonds and ILS towards the end of this year will certainly help to put any freed up, or newly raised, capital to work.

Artemis’ Q3 2014 Catastrophe Bond & ILS Market Report – A lazy summer for ILS

We’ve now published our Q3 2014 catastrophe bond & ILS market report.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the third-quarter of 2014, looking at the new risk capital issued and the composition of the cat bond & ILS transactions completed during Q3 2014.

Download your copy here.