Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

April a record-breaking month for catastrophe bond risk capital issued


The huge Everglades Re Ltd. catastrophe bond which completed in April at a record $750m for a single cat bond helped the month become the strongest single month for volume of catastrophe bonds issued since the market began, according to the latest report from Swiss insurance-linked securities investment manager Plenum Investments. Four cat bonds completed during the month of April, bringing an additional $1.245 billion to insurance-linked securities investors. So April broke records for both deal size with Everglades Re and total issuance.

April saw a diverse mix of perils coming to market through the four deals with U.S. hurricane, U.S. earthquake, Japan typhoon, Mexico hurricane, Caribbean hurricane and Canadian earthquake all making up a part of the cat bons which completed. Even within the U.S. hurricane risk there was diversification opportunities as one cat bond targeted Louisiana hurricane risks and another pure Florida wind.

Another record for the cat bond market was the fact that two new U.S. state sponsored insurers chose to bring cat bonds to market for the first time, as Louisiana Citizens and Florida Citizens both made their first forays into the cat bond space. This is encouraging and a trend we suspect may continue as other state sponsored insurance entities continue to assess cat bonds as a viable alternative to traditional reinsurance.

Finally on the new issuance during April, Plenum Investments highlight the huge range of returns offered by the various tranches which came to market. Premiums offered by these cat bonds range from a low 3.75% to a massive 17.75% annually. Something for everyone in the investor space.

Here are the four cat bond deals which completed during April:

Issuer Sponsor Risks / Perils covered Size Date
Everglades Re Ltd. (Series 2012-1) Citizens Property Insurance Florida hurricanes $750m Apr 2012
Pelican Re Ltd. (Series 2012-1) Louisiana Citizens Louisiana hurricane $125m Apr 2012
Akibare II Ltd. Mitsui Sumitomo Insurance Co. Ltd. Japan typhoon (wind & flood losses) $130m Apr 2012
Blue Danube Ltd. (Series 2012-1) Allianz Argos 14 GmbH U.S. hurricane, U.S. earthquake, Canada earthquake, Caribbean hurricane, Mexico hurricane $240m Apr 2012

The strong pipeline and considerable amount of risk capital coming to market with higher premiums in April meant that secondary market cat bond prices again decreased during the month. Demand was still low for secondary cat bonds as investors sought to access the new deals and set capital aside for them. This lead to price declines across most perils except for Japan earthquake and European windstorm which saw some increases according to Plenum. Prices on U.S. hurricane bonds decreased on average by 1%, on U.S. earthquake bonds and Japan typhoon bonds, prices had a modest decrease of 0.1% while Japan earthquake and Europe windstorm bonds modestly gained on average 0.1%.

As a result of the decline in secondary cat bond marks Plenum Investments fund saw flat performance in April. They expect modest spread widening to continue for May and some of June while the primary market is still strong. After that they expect some U.S. hurricane exposed cat bond spreads to tighten and combined with growing interest in the secondary market and a levelling off of supply and demand, Plenum Investments expect to see stronger growth in their fund in the coming months.

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