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Xactanalysis Insights and PCS

$1.6 billion first-half 2013 catastrophe bonds use PCS within the trigger


Of the catastrophe bonds issued in the first-half of this year, just over $1.6 billion of risk capital issued is based on a trigger which utilises data from Property Claims Services (PCS). PCS, the leading source of data on insured property losses from catastrophes in the U.S., is involved in the trigger of 7 transactions that completed during the first six months of 2013.

PCS has just published its review of the catastrophe bond market for the first-half of 2013. It notes that cat bond issuance was just shy of the magic $4 billion mark, although it does not include the one life and health deal which took the ILS markets issuance according to our Deal Directory to $4.08 billion for the half.

PCS notes that cat bond issuance for the first-half of 2013 was up 8% on the first-half of 2012. It counts $3.9 billion of issuance from 17 transactions in 2013, compared to $3.6 billion from 16 transactions recorded in the first-half of 2012.

The average size of cat bond transaction for the first-half of 2013 comes out at $230m, based on the deals PCS includes, compared to $225m a year earlier. PCS notes that eight deals were under $200m in size but two larger cat bonds (Tar Heel Re Ltd. at $500m and Bosphorus 1 Re Ltd. helped to increase the average).

PCS either provides the trigger for, or its data is used for catastrophe designation, within seven cat bond deals issued in the first-half of this year. Those seven transactions amount to $1.6 billion of risk capital issued, the same volume it was involved in a year earlier although in 2012 it was over nine transactions. That is just over 50% of all U.S. focused issuance so far this year (see data below).

PCS trigger use in first-half 2013 global catastrophe bond issuance

PCS trigger use in first-half 2013 global catastrophe bond issuance

Two of the seven transactions (Tar Heel Re Ltd. and Residential Reinsurance 2013 Ltd.) actually use a trigger based on the sponsors indemnity losses, but PCS data is used for independent catastrophe designation so the firm still has a hand and provides data to the transactions triggers.

The first six months of 2013 has been dominated by U.S. peril catastrophe bonds, with only one transaction, Turkish quake cat bond Bosphorus Re, focused on a diversifying region of the world. However, some transactions included diversifying perils alongside a U.S. peril, such as Queen Street VIII Re Ltd. which includes Australian cyclone risks and Blue Danube II Ltd. which includes hurricane risk in Mexico, Central America and the Caribbean.

Thanks to strong second-quarter issuance of over $3 billion, the first-half of 2013 has seen catastrophe bond issuance levels near records, only beaten by the first half of 2007. Excluding Pelican Re, being issued by a public entity for which PCS data would not be as suitable a trigger, PCS data was involved in some way in 65% of the North American risk exposed cat bond issuance from the first-half of this year.

2013 has seen the fourth catastrophe bond containing Canadian risks which has used a PCS trigger since PCS began covering Canadian catastrophe events in late 2009. Tramline Re II Ltd. sponsored by Amlin used the PCS Catastrophe Loss Index for both U.S. and Canadian perils. Additionally, PCS said it has received increasing interest in using PCS loss data for Canada in industry loss warranties (ILW).

PCS has also seen its data being used within indemnity cat bonds in 2013. Two cat bonds (Tar Heel Re and Residential Re 2013), equating to $800m in risk capital, use PCS for independent catastrophe designation. This means that only indemnity losses from events which have been given a PCS catastrophe serial number can qualify under the terms of the cat bond. This means the catastrophe events have to cause a $25m industry loss, as PCS won’t give a catastrophe serial number to a less serious event, and also that only losses from catastrophes are included.

The full report from PCS contains additional insight and information, as well as an update regarding hurricane Sandy loss estimates. You can access the full report from PCS here.

Find details of every catastrophe bond issued so far in 2013 in our Deal Directory.

Read our recent interview with Joe Louwagie, the new assistant vice president at PCS.

Read our interview from last year with Gary Kerney from PCS.

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