First-quarter cat bond issuance a “breakthrough” for the market: PCS

by Artemis on April 4, 2018

Global catastrophe loss data aggregator, Property Claim Services (PCS) has described catastrophe bond activity in the first-quarter of 2018 as “breakthrough” in light of the record level of issuance and the geographical focus of deals.

Citing Artemis’ data, PCS’ latest catastrophe bond market report notes $3.1 billion of new issuance in the first-quarter, which excludes any privately placed deals, as well as any cat bond lite structures and deals focused on lines of business outside property.

When including these types of deals, and as reported in our latest Artemis Q1 2018 Catastrophe Bond & ILS Market Report, first-quarter issuance actually reached $4.24 billion, which is a record for the period.

But regardless of the inclusion or exclusion of certain types of deals, the first-quarter of 2018 proved to be extremely active for sponsors seeking capital markets backed reinsurance, and this was in spite of the devastating impacts of 2017 catastrophe events that resulted in insurance-linked securities (ILS) investors experiencing some losses.

“What’s most important is that we’ve seen a true breakthrough quarter in the catastrophe bond market,” said PCS.

In its report PCS explains that typically, first-quarter cat bond issuance has a strong focus on North American risks. However, in 2018 deals supported by the World Bank provided earthquake protection in Colombia, Peru, Chile and Mexico, with a combined deal value of $1.36 billion, while PCS states that only $500 million of issuance covered the U.S.

Furthermore, three transactions with a combined value of more than $1 billion covered Japanese perils in Q1.

“It’s clear that the insurance-linked securities (ILS) community can serve a much broader market than it has in the past, marking an important step forward,” said PCS.

In recent times it’s become somewhat of a trend that first-quarter cat bond issuance is a record breaker, but as highlighted by PCS, this year not only did issuance reach a new high, it also focused much more on regions outside of the U.S and also the focus was on reinsurance and insurance, with little retrocession secured.

This underlines the willingness and ability of the ILS community to expand its remit and serve a broader market, ultimately supporting the expansion of risk transfer in emerging regions, such parts of Latin America and elsewhere.

Q1 2018 issuance shows that the ILS investor base appears eager to support large deals in new and emerging regions, and it will be interesting to see if other territories look to the capital markets for their reinsurance risk transfer needs in the future.

During the quarter PCS data was used within the trigger of one cat bond transaction, as it features for catastrophe designation for Allstate’s recent $500 million Sanders Re Ltd. (Series 2018-1) deal.

For details of every catastrophe bond issued during the record first-quarter of 2018 visit our Deal Directory and download our Quarterly Cat Bond Market Reports.

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