Use of PCS data in catastrophe bond triggers up in 2016

Throughout 2016 the use of Property Claim Services (PCS) data for catastrophe bond issuance continued to rise, hitting $3 billion from eleven transactions, according to the PCS full-year 2016 Catastrophe Bond Report.

Excluding cat bond lite transactions, private issuances, and deals focused on lines outside of the property catastrophe space, catastrophe bond issuance in 2016 totalled $5.6 billion says PCS, citing data from the Artemis Deal Directory.

While this represents a slight decline on overall 2015 issuance, PCS explains that the use of PCS triggers, both in terms of the number of transactions and the volume of risk capital issued, increased when compared with the previous year.

Of the $5.6 billion PCS reveals that $3 billion of issuance, from eleven transactions, utilised PCS data, compared with $2.1 billion from nine transactions a year earlier, and $2.8 billion from ten transactions in 2014.

$1.4 billion, or 46.6% of transactions that used PCS data covered risks in Canada, with the remainder being focused on U.S. exposures, explains PCS.

“Use of data from PCS continues to climb, particularly as a result of larger retrocessional transactions that use the PCS Catastrophe Loss Index,” said PCS.

Six transactions utilized the PCS Catastrophe Loss Index in 2016, amounting to $2 billion of new risk capital issued.

The firm continues to explain that several larger deals seen in 2016 from experienced and returning sponsors contributed to the increased presence of index triggers, while the use of PCS data for independent catastrophe definition in indemnity structured deals increased substantially in 2016.

“Last year, five transactions featured this approach, with $1.1 billion in aggregate capital. That’s up from four transactions and a little more than $800 million in 2015 and five transactions and $800 million in 2014,” explained PCS, and highlighted in the chart below.

PCS data use in indemnity cat bond triggers

 PCS explains that during 2016 it designated 54 catastrophes, with the majority (43) coming from the U.S., nine from Canada, and two from Turkey. Furthermore, the company notes that in order for it to designate an event a catastrophe in the U.S., it must incur an insured loss of above $25 million and impact a significant number of insurers and insureds.

Strong fourth-quarter issuance helped the catastrophe bond market remain robust in 2016, while a return of larger catastrophe bonds in the period helped to offset a decline in private transactions.

So despite overall catastrophe bond issuance declining when compared with the previous year, the use of the PCS Catastrophe Loss Index and the use of PCS data for independent catastrophe definition in indemnity structured deals, continued to increase.

Join Artemis in New York on February 3rd 2017 for ILS NYC.