Catastrophe bond market hits $19 billion outstanding for first time

For the first time in its approximately sixteen and three-quarter year existence, the catastrophe bond market has hit a new record for the amount of risk capital outstanding, with the market having reached over $19 billion in size for the first time.

Based on data shared by reinsurer Swiss Re and with the addition of every transaction covered in our catastrophe bond Deal Directory this year (as Swiss Re does not include some smaller, private deals), we calculate that the outstanding catastrophe bond market reached $19.012 billion with the closing of the Atlas IX Capital Limited (Series 2013-1) mortality cat bond in September.

If we add-on the most recent Calypso Capital II Ltd. (Series 2013-1) European windstorm cat bond from AXA, which priced yesterday and is due to settle next Tuesday, the total amount of catastrophe bond risk capital outstanding will be $19.488 billion as of the 15th October once that issuance is complete.

This is a new milestone for the catastrophe bond market. At the start of this year there was speculation that the cat bond market may reach $18 billion to $19 billion in size by the end of 2013. The outstanding catastrophe bond market reached $18 billion by the end of the first-half and thanks to stronger than normal issuance during Q3 of $1.68 billion the issuance rate continued to outstrip maturities helping the cat bond market reach this new high.

The chart below shows catastrophe bond issuance and catastrophe bond risk capital outstanding by year. The core data is from Swiss Re but the 2013 figures include all of the transactions in our Deal Directory and the soon to complete Calypso Capital II. Note that cat bond issuance in 2013, including the as yet to complete Calypso Capital II, of around $6.24 billion will be only just behind the full year 2012 figure already.

Catastrophe bond risk capital issued and outstanding by year - Source: Swiss Re and Artemis Deal Directory

With maturities through the fourth quarter scheduled to be just over $650m, according to data from reinsurer Munich Re, we should easily see catastrophe bond issuance reach $7 billion this year. Issuance still has a way to go to beat the $8 billion plus of 2007, as you can see from the chart above, but whatever the final figure 2013 has certainly seen significant growth of the market.

Catastrophe bond risk capital outstanding is now around $3 billion higher than at the end of 2012 (again we’re including Calypso Capital II here) which is the second highest outright growth in the size of the cat bond market in a single year, aside from 2006/7. Risk capital outstanding is now over $2 billion higher than at the end of 2007, the previous high point in the cat bond markets history.

With just $650m of maturities expected through the rest of 2013, the question we must now pose is whether the outstanding catastrophe bond market can reach $20 billion by year-end? That will be another huge milestone for the market and it seems well within reach if issuance in Q4 lives up to expectations.

It’s worth noting that GC Securities, the capital markets division of broker Guy Carpenter, suggested recently that the cat bond market may reach $23 billion in size by the end of 2016. If the market keeps growing at its recent rate that seems eminently achievable.

As a final point it is worth bearing in mind that despite the strong growth and record size of the catastrophe bond market, issuance is still not keeping up with demand for cat bond paper and there is ample alternative capital available to support this market growing considerably further.

Note: Swiss Re’s market data shows issuance of $5.6 billion by the end of the third quarter of 2013, which brought catastrophe bond risk capital outstanding to $18.848 billion at the end of September, according to its data. We’ve added all of the cat bond transactions included in our Deal Directory to come up with the numbers above.