Outstanding cat bond & ILS market grows to $25 billion+ again

The catastrophe bond and insurance-linked securities (ILS) market has clawed back almost all of the risk capital lost due to heavy maturities seen during the first-half of 2015, with the outstanding size of the market now back above $25 billion for the first time since the start of the year.

2015 has seen the highest level of maturing cat bond and ILS transactions since the market began. In total, year-to-date, Artemis has recorded $6.853 billion of transactions maturing from the listings in the Deal Directory.

That volume of cat bond maturities is unprecedented. In fact around $2.7 billion matured in the first week of 2015, with over $4 billion by the end of March. At that rate it was always going to be difficult for issuance to keep up with maturities, particularly in a time of lower reinsurance demand, resulting in a significant shrinking of the market through the first-half of 2015.

At the end of 2014 Artemis recorded the outstanding cat bond and ILS market at a record high of $25.357 billion. By the end of Q1 2015 that figure had shrunk to $23.066 billion, as the rapid pace of maturities far outstripped even a record first-quarter.

The second-quarter saw a more rapid pace of issuance and a slower rate of maturities, allowing the outstanding market to claw back some of the loss of risk capital outstanding. By the end of Q2 2015 the outstanding market sat at $24.547 billion.

While the third-quarter is typically a slower few months of issuance, 2015 has seen a sufficient level of new transactions coming to market to enable further growth of cat bond and ILS risk capital outstanding. At this stage in the quarter, with one deal left to complete, Artemis now records $25.026 billion of cat bond and ILS risk capital outstanding in the Deal Directory.

Click the image to access our series of dynamic charts breaking down the outstanding catastrophe bond & ILS market

So while the market has not yet caught up with the rapid pace of maturities in 2015 and outright growth remains a little way off, the fact that risk capital outstanding is back over the $25 billion mark is still impressive.

According to Artemis’ data, a further $764m of catastrophe bond risk capital is left to mature through the rest of 2015. However, with at least $200m to add from Amtrak’s PennUnion Re Ltd. cat bond, which is scheduled to complete before the end of this quarter and three months ahead, it is highly likely that the outstanding market will achieve outright growth by year-end.

The catastrophe bond issuance market has certainly been affected by conditions in the broader reinsurance market this year, as well as by some primary insurer sponsors that are still in the process of trying to rationalise their reinsurance buying.

Given the conditions in the reinsurance market, the competition that greater acceptance of collateralized reinsurance and also strong price competition from traditional reinsurance presents, as well as some insurers mission to rationalise their buying, to achieve outright growth in the catastrophe bond asset class will be impressive.

It’s a clear demonstration of the continued importance of cat bonds as a risk transfer tool and source of reinsurance protection, as well as of the continue attraction that institutional investors have for the securitized catastrophe risk product.

Sources suggest that the pipeline for new cat bond issuance in the fourth-quarter is not particularly strong, but should be sufficient to ensure outright growth of the market once again.

Under current market conditions, and considering the record level of maturities, we’d call that a very healthy year indeed.

Don’t miss our next quarterly cat bond and ILS market report, due to be published on the 1st of October.

You can view information on every catastrophe bond issued so far in 2015 in the Artemis Deal Directory.

Keep up-to-date with the make-up of the catastrophe bond and ILS market using the Artemis Catastrophe Bond & ILS Market Dashboard, designed to be a simple and effective tool providing key data and statistics on every transaction (there are 380+) contained in our catastrophe bond & ILS Deal Directory.

View the current breakdown of the market in our range of charts, allowing you to analyse key stats on the cat bond market.