Cat bond lite issuance reaches new heights in 2015

The catastrophe bonds and insurance-linked securities (ILS) market has witnessed rapid growth in recent years, aided by the growing acceptance and use of cat bond lite structures, with 2015 already being a record year for private deal issuance.

For consecutive years the cat bond lite, or privately placed catastrophe bond market has seen issuance levels surpass $500 million. Data from the Artemis Deal Directory reveals that so far in 2015, so by the end of the third-quarter 21 tranches of notes from 18 deals have been issued, amounting to $547 million, some $44 million higher than seen at year-end 2014.

2015 cat bond lite issuance to 30th September

Privately placed cat bond issuance at the end of Q3 2015 is roughly $131 million higher than at the same period last year, $366 million more than at the end of Q3 2013, and a huge $524 million above Q3 2012.

In fact, data from Artemis shows that the combined volume of total cat bond lite transactions brought to market this year equals 42% of cat bond lite deals since 2012, with the possibility of further deals in the final quarter of the year.

So clearly the acceptance, understanding and willingness of sponsors and investors to participate in cat bond lite transactions is growing, and at a fairly rapid pace.

Interestingly, for the selected years, which is really since cat bond lite issuance started to gain momentum, the majority of deals have been issued during the first three-quarters of that year.

This was the case for 83% of deals in 2014, 77% of deals in 2013, and 100% of deals in 2012, although in this year there was only one transaction witnessed in the market, the familiar Oak Leaf series from veteran cat bond lite sponsor Southern Oak Insurance Company.

Should this trend continue it’s likely the market will see some deals come to fruition during Q4, but it would take a couple of typically sized deals or a larger issuance to see levels exceed the $600 million.

The 18 deals issued so far this year represents an 11% growth on the number of deals issued at year-end 2014 (16), and a 67% growth rate on the amount of deals brought to market in 2013 (6). And when compared to 2012 the growth rate of the number of cat bond lite transactions brought to market in 2015 is a significant 94% higher.

The majority of the deals in 2015 came from familiar issuance platforms, as follows:

• The Kane SAC Limited platform, operated by independent insurance manager Kane and launched in August 2013, issued the following deals: Kane SAC Limited – Series Ax Notes $9.722m, Kane SAC Limited – Tralee $17.6m, Kane SAC Limited (Series 2015-1) $50.2m, Kane SAC Limited – Exeter $54.81m, Kane SAC Limited – Troon $27.53m, Kane SAC Limited – Muirfield $26.68m, Kane SAC Limited – Hereford $16.82m, Dodeka VII $18.899m, Dodeka VI $19.078m, Dodeka V $18.88m, and Dodeka I – 2015 $20.695m. A total of $280.914 million issued year-to-date.

• JLT Capital Markets Market Re platform, launched in 2014, issued three transactions: Market Re Ltd. (Series 2015-1), Market Re Ltd. (Series 2015-2) and Market Re Ltd. (Series 2015-3). A total of $111.6 million issued year-to-date.

• Tokio Solutions Management Ltd. and GC Securities’ Tokio Tensai platform launched in 2013, issued the following deal: Hotaru $47.6m. A total of $47.6 million issued year-to-date.

• Hannover Re’s Kaith Re platform, previously used for the reinsurance giant’s K Cession capital markets retro reinsurance transactions, issued the following deal: LI Re (Series 2015-1) $3.75m. A total of $3.75 million issued year-to-date.

Total issuance from these deals amounts to $443.847 million, with the remaining $103 million being issued privately using SPIs set up for or by the sponsor themselves, including Panda Re Ltd. (Series 2015-1) $50m, and Oak Leaf Re Ltd. (Series 2015-1) $53.03m.

You could also consider AIG’s six month parametric Compass Re II Ltd. (Series 2015-1) cat bond private, as it was not a full 144a issuance, which would take the total year-to-date to $874m.

The average deal size for privately placed cat bonds year-to-date is $26 million, just $1 million higher than full-year 2014, but $13 million less than the average deal size witnessed in 2013.

However, 2013 had a significantly lower amount of deals come to market and also included the $60 million Skyline Re Ltd. 2013-1 deal, a larger than usual transaction. It’s worth noting here that the Skyline platform was used again in 2014, upsized to $100 million and extended to cover a three-year period, so a sizeable renewal was not to be expected this year.

It’s also important to remember that Artemis doesn’t hear about every cat bond lite, or privately placed deal that comes to market, but we do endeavour to cover and include as many of these types of transactions as possible, as to give the clearest and most complete picture of the catastrophe bond and ILS market.

The use of an indemnity trigger has been most common in the cat bond lite market since 2012, although the familiar Dodeka and Kane SAC Limited platforms have brought some industry loss index trigger to market since 2014.

With the final three months of the year underway it will be interesting to see just how large the volume of cat bond lite issuance will be at the year’s end, should investor appetite continue on the same path as the last 21 months, issuance levels could come close, and even surpass the $600 million mark.