Q2 2015 Cat Bond & ILS Market Report: Keeping up with demand

This morning we published our latest quarterly report looking at issuance in the catastrophe bond and insurance-linked securities (ILS) market. The report titled ‘Q2 2015 Catastrophe Bond & ILS Market Report – Keeping up with demand‘ shows that while not setting records, Q2 issuance kept up with investor demand at $3.162 billion.

Our latest quarterly report (PDF file) reviews the catastrophe bond and insurance or reinsurance-linked securities (ILS) market at the end of Q2 2015, looking at new risk capital issued during the second-quarter and the composition of transactions completed.

The second-quarter of 2015, while not record-beating, demonstrated that the growth trend in ILS and cat bonds looks set to continue as issuance kept up with strong investor demand for access to reinsurance risks.

In total Artemis recorded $3.162 billion of new risk capital issued in the Deal Directory, from 17 transactions that were completed during the quarter. Compared with a year earlier when the Q2 record was set, Q2 2015 saw a similar number of transactions and it was only the outsized Everglades deal that made last year’s quarter the record that it was.

Once again the ‘cat bond lite’, or privately placed catastrophe bond, featured heavily during the second-quarter issuance as smaller sponsors and ILS funds took advantage of demand and access to risk at the key June renewal season.

In fact, seven of the transactions recorded by Artemis during the quarter would be considered ‘cat bond lite’ transactions, showing this trend of smaller deals continues to pick up pace and they are becoming a meaningful proportion of the market’s issuance activity.

As you’d expect given the time of year and the corresponding reinsurance market renewal period around June, much of the Q2 cat bond issuance was focused on U.S. perils, with named storm and hurricane risks the dominant force.

Still, some diversification was available, both in terms of perils ceded to investors through Q2 cat bond deals and also through triggers, with the parametric trigger making what some consider an overdue return to the market.

Given the very high level of maturing cat bonds during the first-half of 2015 the outstanding market remains smaller than the record seen at the end of 2014. However the strong issuance through the first-half of 2015, at $5.224 billion, has lifted the outstanding cat bond and ILS market back to $24.547 billion.

Further outright growth of the market seems assured for the market by the end of 2015, as scheduled maturities ahead are lower than even an average level of new second-half catastrophe bond and ILS issuance.

Of course, when we say ‘keeping up with demand’ what we really mean is that the pace of catastrophe bond and ILS issuance has kept up with last year in 2015. Demand is not really being satisfied yet, particularly not for higher-yielding transactions which investors currently crave.

But, as issuance and demand both remain high and the forward pipeline is said to look more robust than usual for the third and fourth-quarters, 2015 could still come very close to last year’s record.

Could we see $9 billion of cat bond and ILS issuance again in 2015? Anything is possible while investor demand for access to insurance risk remains so high and cedent interest in efficient, capital markets-backed risk transfer keeps growing.

Download your copy of the full report in PDF format here.

For copies of reports from previous quarters, as well as a full year review of 2014 in the Q4 report, visit our archive page to download them all.

Don’t forget that you can view the breakdown of the outstanding catastrophe bond and ILS market, as well as other statistics on the market and its growth, using our ILS Market Dashboard and range of ILS market charts, statistics and graphs.