Cat bond industry loss triggers up nearly 140% year-on-year: PCS

During the first-nine months of 2017 the use of the PCS industry loss trigger for catastrophe bond issuance increased substantially when compared with the same period in 2016, to a huge $4.54 billion, according to analysis from Property Claim Services (PCS), a Verisk Analytics company.

The $4.54 billion figure is from 12 catastrophe bond transactions issued from the start of 2017 through September 30^th, 2017, and represents growth of just under 140% when compared with the $1.9 billion of cat bond issuance that utilised a PCS trigger in 2016, from nine transactions.

The analysis comes from the PCS Q3 2017 catastrophe bond market report, which utilises data from the Artemis Deal Directory to assess global catastrophe bond issuance in the third-quarter, but also the first-nine months of the year.

Overall, the report states $9.3 billion of catastrophe bond issuance for the first-nine months of 2017 from 31 transactions, compared with $3.7 billion from 16 transactions, for the same period in 2016.

It’s important to note that PCS’ data excludes cat bond lite deals, privately placed deals, and transactions that include perils outside of the property space, so Artemis’ actual issuance numbers are somewhat higher, as shown by the Artemis Deal Directory and our quarterly cat bond market reports.

Of the $9.3 billion of nine-month issuance, nearly 50% utilised a PCS trigger in 2017, which is relatively in line with the amount of issuance that used a PCS trigger in 2016, in terms of deal volume.

In terms of the number of transactions, roughly 39% utilised a PCS trigger in 2017, compared with around 56% in the opening nine-months of last year.

Of the deals that used a PCS trigger, five, amounting to $2.6 billion utilised the PCS Catastrophe Loss Index, with seven, amounting to $1.9 billion using PCS for independent catastrophe designation.

Year-on-year and concerning overall 2017 issuance, explains PCS, the average transaction size increased by 28% to almost $300 million, with the majority covering North American perils.

$8.4 billion, or more than 90% of nine-month 2017 issuance provided coverage for North American perils, which again is in line with the percentage of total nine-month 2016 issuance that focused on North American risks.

In terms of the number of transactions, PCS data reveals a similar story, with 28, or 90% of the 31 deals issued in the period in 2017 covering North America. Although, this is actually an increase on the previous year, when 81%, or 13 out of the 16 transactions issued in the first-nine months of 2016 protected against North American perils.

Seven catastrophe bonds completed during the nine-month period covered Canadian perils, amounting to $2.8 billion, which PCS says is the most robust year for Canadian catastrophe bond coverage since the market’s inception.

Furthermore, some 13 cat bond lite structures came to market in the first-nine months of 2017, amounting to almost $500 million of issuance, according to PCS.

Catastrophe bond issuance in 2017 has been extremely impressive, especially considering the broader insurance and reinsurance market turmoil that has persisted throughout the year, and which is expected to continue in 2018.

It will be interesting to see how the ILS market performs in the final months of 2017 and in the opening months of 2018, considering recent catastrophe events in the U.S. and the Caribbean, as well as the Mexico earthquakes.