North American cat bond issuance up to $1.9 billion in Q1 2017: PCS

by Artemis on April 12, 2017

North American catastrophe bond issuance increased in the first-quarter of 2017 by roughly 19% to $1.9 billion, according to analysis from Property Claim Services (PCS), a Verisk Analytics business.

When compared with the first-quarter of 2016 North American catastrophe bond issuance increased by $300 million in 2017, while the number of transactions remained flat at seven, this is according to PCS’ Q1 2017 Catastrophe Bond Report.

In total, eight more broadly marketed 144a catastrophe bonds came to market in the opening three months of 2017, totalling $2.3 billion (excluding cat bond lite transactions, private cat bonds, or deals not focused on lines outside of property), with just one of these having no North American exposure, with Aozora Re Ltd. (Series 2017-1) covering Japan typhoon risks.

Data from the Artemis Deal Directory shows that total catastrophe bond and insurance-linked securities (ILS) issuance in the first-quarter of 2017, including all sub-sectors (private deals, cat bond lite, and deals outside of the property arena) of the catastrophe bond market, actually reached a record $2.76 billion from 14 transactions, the fourth consecutive Q1 where issuance levels have been broken.

Of the $2.3 billion of issuance reported by PCS of which $1.9 billion covered North American exposures, $900 million, or two transactions utilised a PCS trigger. This is compared with $2 billion of total issuance in Q1 2016 of which $1.6 billion covered North American exposures, which saw $950 million, or four transactions utilise a PCS trigger.

In Q1 2017 Galilei Re Ltd. (Series 2017-1) and Sanders Re Ltd. (Series 2017-1) utilised the PCS Catastrophe Loss Index, with the latter using a mix of industry loss index and indemnity with independent catastrophe definition (both by PCS), explains the report.

In fact, during the opening three months of 2017 Sanders Re was the only transaction to use PCS for independent catastrophe designation, compared with two transactions in Q1 2016, amounting to $350 million of limit.

So, PCS trigger use was down roughly 5% in terms of volume, and 50% in terms of the number of transactions in Q1 2017, when compared with the same period in 2016.

Galilei Re, the largest transaction of the first-quarter at $525 million, was also the only deal to cover Canadian risk. Owing to the size of the transaction, PCS explains that capital raised by cat bonds that include cover for Canada fell only slightly from the $600 million recorded in Q1 2016.

PCS’ 2017 Catastrophe Bond Report also looks at cat bond lite issuance in the opening quarter of the year, noting that sponsors completed three such deals, amounting to a combined $118 million.

Again, this differs from Artemis’ numbers owing to the exclusion of certain deals, with the Artemis Deal Directory recording more than $890 million of combined cat bond lite and privately placed deals in the first-quarter of 2017, also highlighted in the Artemis Q1 2017 Catastrophe Bond & ILS Market Report.

“The broadening use of private catastrophe bonds (of which cat bond lite is a subset) suggests a continued interest in increased flexibility and frictional cost reduction while still maintaining access to capacity from providers that have liquidity mandates,” says PCS.

Looking forward, PCS says that ILS market demand for new peril regions remains significant, with the ILS market reportedly increasing its interest in lines such as marine and energy, terror, cyber, and others.

A high volume of deals are scheduled to mature in the second-quarter of 2017, meaning that an above average level of deal issuance will be needed in the coming months if the market is to continue down its impressive growth path.

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