Use of PCS industry loss triggers up in Q1 2015 cat bond issuance

by Artemis on April 8, 2015

Use of insurance industry loss triggers using data supplied Property Claim Services (PCS) increased in the first-quarter of 2015, as a record first-quarters’ catastrophe bond issuance saw PCS’ data used in $800m of transactional volume across 4 deals.

In PCS’ latest catastrophe bond market report, titled ‘Heavy and Lite: PCS® First-Quarter 2015 Catastrophe Bond Report‘ the firm highlights a record quarter of catastrophe bond issuance, based on data that only includes the larger, more publicly issued transactions.

PCS cites $1.5 billion of total issuance from the segment of the market not including private or cat bond lite type deals, from 7 transactions in Q1 2015. That makes it the biggest first quarter of issuance ever, beating Q1 2014’s $1.2 billion from 6 transactions.

Of the $1.5 billion of issuance, $800m of deal volume from 4 transactions was linked to a PCS industry loss trigger or data, almost double the $465m from 3 transactions a year earlier.

If you consider that PCS only provides triggers and data for North American cat bond transaction uses, the percentage attributable to PCS triggers is even more impressive. With $1.2 billion of North American cat bond issuance in Q1, the $800m of PCS linked issuance accounts for two-thirds of the total.

Q1 2015 catastrophe bond issuance and PCS trigger usage

Q1 2015 catastrophe bond issuance and PCS trigger usage

So use of PCS industry loss data within catastrophe bonds issued during the first-quarter was up 72% year-on-year, clearly demonstrating that sponsors continue to value the industry loss data and trigger and that investors are happy to invest in the transactions that use it.

Three of the transactions used PCS industry loss triggers while the fourth used PCS catastrophe industry loss data as a designation factor within its indemnity trigger. In Q1 2014 2 transactions used PCS catastrophe data for designation purposes, but with the number of indemnity transactions lower in 2015 the trigger use dominated for PCS this time around.

PCS also covers Canada and 2 transactions came to market in Q1 2015 which covered Canadian perils, both of which used the PCS Catastrophe Loss Index. PCS also notes that there is interest in using its data within cat bond lite transactions which cover only Canadian perils, where as to-date the cat bonds covering Canada have also covered other countries or regions as well.

The data from PCS’ latest catastrophe bond market report shows that the industry loss trigger is alive and well and playing a key role in the ILS market today. Continued evolution of the PCS product set should ensure that the triggers role continues into the future.

Download the full report from PCS here.

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