Catastrophe bond & ILS market reaches record high at $23.431 billion

The outstanding catastrophe bond and insurance-linked securities market, based on transactions listed in the Artemis Deal Directory, has reached a new all-time high of $23.431 billion, demonstrating that ILS and cat bonds continue to generate strong interest.

Both sponsors and investors have continued to demonstrate their increasing comfort with the insurance-linked and catastrophe bond asset class, both as risk transfer and reinsurance tool and as an investment. This continued strong demand from both sides of the market has helped 2014 issuance to reach $7.143 billion which has in turn now boosted the outstanding cat bond and ILS market back to a new record high.

Earlier this year the outstanding cat bond and ILS market passed $23 billion for the first time in June, but a slower third-quarter in the primary market and a number of maturing bonds saw it subsequently slip back below that number again. The completion of reinsurance firm Everest Re’s latest deal, the $500m Kilimanjaro Re Ltd. (Series 2014-2) cat bond, has taken the outstanding cat bond and ILS market back to another record high with further growth possible by year-end.

With just $78m of catastrophe bonds set to mature before the end of the year (on our numbers) and at least $500m of new issuance yet to complete, with some more rumoured to be coming before year-end, the size of the outstanding market could grow even more in 2014. We could see the market pass another milestone, reaching $24 billion, before 2014 comes to a close.

These figures are based on transactions added to the Artemis Deal Directory, so include catastrophe bonds, life insurance linked securitizations, mortality ILS, longevity bonds and a growing number of privately issued cat bond lite type deals. We feel this is the most complete record of the cat bond and ILS markets issuance since it emerged in the late 1990’s, hence our number tends to be above other market reports and commentators.

This record cat bond market size shows the continued interest in insurance linked investments from investors and continued interest that sponsors have in tapping the capital markets for reinsurance and retrocession protection. However it is worth noting that despite all the mainstream press regarding supposed ‘yield hungry’ investors (read our take on that), the outstanding cat bond and ILS market has actually only grown by about $3 billion since the end of 2013.

Capital from maturing cat bonds and ILS continues to be reinvested in the asset class. While new inflows are also evident, the largest growth sector continues to be in private deals and collateralized reinsurance. So far this year the outstanding market has grown by just over 14%. More impressive perhaps is the growth since the end of 2011, after the cat bond and ILS market shrank for a few years. The market is now 71% bigger than it was at the end of that year, encouraging growth for a three-year period.

Catastrophe bond & ILS risk capital issued and outstanding - Source Artemis Deal Directory

Catastrophe bonds and ILS are still a niche asset class really, but one with a growing audience of investors watching and learning about the space and developing an interest in it, as evidenced by our 32,000+ readers every month.

It’s encouraging that the market continues to grow even while catastrophe bond yields remain so low. The overall investment portfolio boosting and diversification qualities associated with a low correlated asset ensure that further growth and increasing interest are likely in years to come, even to lower yields.

The market is likely to shrink a bit in early 2015, due to the huge volume of maturities that are approaching. It is to be hoped that issuance manages to keep pace, market sources suggest that the pipeline for the first-half of 2015 could be extremely strong, to allow much of that maturing capacity to be reinvested in the asset class.

Stay tuned as we see just how much more issuance comes to market in 2014 and how the pipeline develops for 2015!

The latest transaction to complete has been included in all of our catastrophe bond and ILS market statistics. View the breakdown of the market in our range of charts, allowing you to analyse the cat bond market.

Keep abreast of the make-up of the catastrophe bond and ILS market with the Artemis Catastrophe Bond & ILS Market Dashboard. Designed to be a simple and effective tool which exposes the key data and statistics contained in the transactions found in our catastrophe bond & ILS Deal Directory.