Q4 2016 Cat Bond Market Report – Market reaches new heights

Our latest report on the catastrophe bond and insurance-linked securities (ILS) market has now been published. The report, ‘Q4 2016 Catastrophe Bond & ILS Market Report – Market reaches new heights‘, analyses a fourth-quarter featuring $2.13 billion of issuance and a new record as risk capital outstanding reached $26.82 billion.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the fourth-quarter of 2016, looking at the new risk capital issued and the composition of transactions completed during Q4 2016.

Data from the Artemis Deal Directory shows that the fourth-quarter of 2016 saw $2.13 billion of risk capital issued from six transactions, exceeding the ten-year average for the quarter by approximately $337 million. This helped to take annual issuance for 2016 passed the $7 billion mark.

At the same time this level of issuance in 2017, and helped by strong investor and sponsor appetite throughout the year, saw the market end 2016 at a new record size, of $26.82 billion.

At $354.4 million, the average transaction size issued in the fourth-quarter is the largest of the last decade and, this rises to an impressive $423.3 million with the exclusion of Q4’s only private, or cat bond lite transaction.

A number of larger transactions came to market in the final quarter of the year, including a $750 million deal from XL Bermuda, the largest cat bond of 2016. While trigger diversification lacked somewhat in the fourth-quarter, returning sponsors provided investors with some valuable geographic and peril risk diversification.

Six transactions consisting of 15 tranches of notes were brought to the catastrophe bond and ILS market in the fourth-quarter of 2016, resulting in $2.13 billion of new risk capital issued. The $2.13 billion of new risk capital issued is the fifth time during the last decade that issuance levels have exceeded $2 billion, during the fourth-quarter.

Continuing the trend witnessed throughout the catastrophe bond market in recent years indemnity protection dominated issuance in Q4. Sponsors secured roughly $1.37 billion of indemnity cover, which accounts for approximately 65% of total risk capital issued during the quarter.

In terms of the risks that came to market in the quarter, no single peril dominated fourth-quarter catastrophe bond issuance, and investors were able to take advantage of geographical and risk diversification.

Despite issuance in the fourth-quarter failing to break any individual quarterly records, the $2.13 billion of new risk capital issued helped the outstanding catastrophe bond and ILS market end the year at an impressive $26.82 billion.

Data from the Artemis Deal Directory shows that this is a new record, the largest the outstanding market has been in its history, and is roughly $304 million above the previous record, set at the end of Q1 2016.

In spite of insurance and reinsurance market pressures, catastrophe bond and ILS business clearly remains attractive to investors, underlined by the continued growth of the sector even though returns are reduced, and competition intense. Re/insurance market headwinds are expected to persist into 2017, so it will be interesting to see if the catastrophe bond and ILS market can continue to expand and grow.

For full details of the quarter, including a breakdown of the issuance by factors such as perils, triggers, expected loss, pricing, and analysis of the issuance trends by month and year, download your copy of Artemis’ Q4 2016 Cat Bond & ILS Market Report here. This report also includes data on full-year 2016 cat bond issuance.

For copies of reports from previous quarters, visit our archive page to download them all.