$7.898bn of cat bond issuance in 2015 takes market near $26bn

by Artemis on January 7, 2016

The outstanding catastrophe bond and insurance-linked securities (ILS) market has almost reached $26 billion for the first time on record, as the $7.898 billion of new issues in 2015 helped the market to grow once again.

Catastrophe bonds remain an attractive source of insurance, reinsurance and retrocession, with sponsors from all layers of the risk transfer markets embracing the securitisation product as a way to secure insurance or reinsurance protection from capital market investors.

The full-year total issuance for 2015, as recorded by Artemis in the Deal Directory, reached an impressive total of $7.898 billion from 49 transactions.

This impressive issuance, which while not keeping up with the record set in 2014 is still the third-highest annual issuance total ever recorded by Artemis, helped the outstanding cat bond market to grow once again. By the end of December the outstanding catastrophe bond and ILS market, as recorded by Artemis, had reached $25.961 billion, outright growth of roughly $681 million over the course of the year.

Full-year 2015 catastrophe bond & ILS risk capital issued and outstanding

Full-year 2015 catastrophe bond & ILS risk capital issued and outstanding (click to download the full report)

Catastrophe bond and ILS issuance in 2015 was dominated by the first-half of the year in 2015, with over $5.2 billion, or 66.6% of the total risk capital issued in H1 2015. As in the previous year, the month of May saw the highest level of issuance during the year, at $1.47 billion. March and December were the only other months to see more than $1 billion worth of transactions come to market.

Per-occurrence reinsurance protection dominated cat bond issuance in 2015, with over 60% of the risk capital issued structured in this way. Aggregate protection was again most popular in the second-quarter, as U.S. primary insurer sponsors sought to increase their capital markets sourced reinsurance protection on an aggregate basis.

2015 catastrophe bond issuance by risk or peril covered

Full-year 2015 catastrophe bond issuance by risk or peril covered (click to download the full report)

As can be seen in the chart above, taken from our new Q4 2015 Cat Bond Market Report, full-year 2015 catastrophe bond and ILS issuance saw a particularly diverse range of perils and risks transferred to the capital market ILS investor base.

Multi-peril transactions dominated, as sponsoring insurance and reinsurance firms sought to lock-in attractive rates to acquire cover across their key peak peril exposures. This trend appears to have accelerated somewhat in 2015, perhaps as single-peril pricing has been so attractive in the traditional reinsurance market, particularly for U.S. wind and European windstorm risks.

In terms of the triggers used within catastrophe bond and ILS securitisation structures, indemnity protection was again the most popular, with over half of all issuance in 2015 featuring an indemnity trigger. However the parametric trigger had its strongest year in a long time, with a number of cat bonds from major sponsors featuring one.

2015 catastrophe bond issuance by trigger

Full-year 2015 catastrophe bond issuance by trigger (click to download the full report)

2015 catastrophe bond issuance saw ILS fund managers and investors demanding a slightly higher returning asset, resulting in a slightly higher average expected loss of issuance. The average coupon of 2015 cat bond and ILS issuance came in at 5.01%, while the average expected loss was 2.04%. That compares to a coupon of 4.56% and an expected loss of 1.64% averaged across 2014’s issuance.

ILS investors are keen to ensure they can maintain a reasonable level of return above the expected loss though and 2015’s issuance saw an average multiple of 2.46 times the expected loss (lower than 2014’s 2.78 times) but the spread above expected loss was 2.97%, slightly higher than the 2.92% seen across 2014 issues.

Ending the year so close to the $26 billion figure, at $25.961 billion, bodes well for the year ahead and continued growth is expected in catastrophe bonds in 2016. Further diversification has also been forecast, as the cat bond matures as an insurance and reinsurance risk transfer solution and the ILS investor base becomes increasingly educated and sophisticated.

As we look ahead to 2016, ILS investors will be hoping for brisk issuance once again. There are fewer maturities ahead than were seen in 2015. $6.088 billion of outstanding catastrophe bonds and ILS are scheduled to mature throughout 2016 ($1.779 billion in Q1 2016), according to the Artemis Deal Directory, which should ensure that further outright growth is seen as issuance should easily be able to keep pace.

Note: The full-year 2015 issuance figures include a late entry private cat bond deal which did not make it into our report, due to only coming to light after the start of January, hence a small difference in the issued and outstanding figures.

Artemis’ Q4 2015 Catastrophe Bond & ILS Market Report – Outright market growth continues

Q4 2015 Catastrophe Bond & ILS Market ReportWe’ve now published our Q4 2015 catastrophe bond & ILS market report.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the fourth-quarter of 2015, looking at the $1.525 billion of new risk capital issued and the composition of the cat bond & ILS transactions completed during Q4 2015. The report also includes a review of the full year 2015 issuance and commentary from co-editor GC Securities.

Download your copy here.

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