Cat bond lite issuance continues apace in 2021

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The number of privately placed catastrophe bond transactions issued in the first-quarter of 2021 is the most ever recorded for the period and ensured that once again, the dollar-value of issuance from these cat bond lite deals came in above the ten-year average for the period.

Artemis’ Q1 2021 catastrophe bond and insurance-linked securities (ILS) market report shows that in the opening quarter of the year, 13 individual private, or cat bond lite transactions were issued with a combined value of approximately $238 million.

As shown by the Artemis Deal Directory, 13 private cat bond transactions is the most witnessed in the first quarter of any year; exceeding last year’s 11 and is also more than double the ten-year average of 6.1 transactions.

Year-on-year, private cat bond issuance increased by $128 million in Q1 2021, making it the third most active first-quarter, in terms of risk capital issued, in the market’s history.

The chart below highlights that, the level of cat bond lite issuance witnessed in Q1 2021 is behind only the $258 million seen in 2019 and the record $411 million seen in 2017.

cat-bond-lite-private-issuance-2021

A private placement provides investors and sponsors with a streamlined, low-friction and more cost-effective means of accessing catastrophe bond-backed reinsurance coverage.

While typically smaller in size than traditional 144A cat bond transactions, cat bond lites are increasingly larger than $50 million in size, with some nearing and even hitting $100 million.

That being said, in Q1 2021, the average size of cat bond lite issuance amounted to just $18.3 million. While this is above the $9.9 million posted in Q1 2020, it remains below the $25.8 million recorded in 2019, and the $46.5 million and $41.1 million reported in 2018 and 2017, respectively.

The fact these deals are privately placed means that often, little information is available to us and sometimes we are only able to obtain the name, issuer, and size of the deal. Where possible, Artemis tracks both the trigger structure and peril class of cat bond lite deals.

During the first-quarter of 2021, 9%, or approximately $21 million of private cat bond issuance leveraged a parametric trigger structure; while we do not have trigger information for the remaining 91%.

For comparison, in Q1 2020, roughly 17% of private cat bond issuance featured a parametric trigger structure. Last year’s Q1 also provided investors with greater trigger diversification when compared with this year, as just over 6% of issuance leveraged an industry loss trigger; while we do not have trigger information for roughly 77% of Q1 2020 issuance.

So, as is the case with traditional 144A placements, trigger diversification is evident in the cat bond lite space. And, importantly, so too is peril diversification.

Sponsored by the Danish Red Cross, the $3 million privately placed Dunant Re IC Limited (Series 2021-1) catastrophe bond transaction is the first in the history of the cat bond market, so including 144A deals, to cover pure volcanic risk.

Although this deal only accounts for a little more than 1% of issuance, it did provide investors with both peril and trigger diversification in the opening quarter of the year.

Approximately 8% of Q1 2021 cat bond lite issuance covered Japan earthquake risk. 34% provided protection against unknown property catastrophe risks, and 57% offered protection against U.S. property catastrophe risks.

As the Artemis Deal Directory shows, it’s typical in any quarter for privately placed deals to be dominated by a mix of unknown and U.S. property catastrophe risk. However, diversification is almost always present and this is something which has likely helped these deals gain traction and increase their contribution to overall catastrophe bond issuance.

Stay tuned to Artemis as we move through the second-quarter of 2021, which is forecast to be a busy period for new catastrophe bond issuance and we’ll detail every transaction in our Deal Directory.

We’ll keep you updated on all catastrophe bond and related ILS transaction issuance, as well as evolving trends in the cat bond and insurance-linked securities (ILS) market.

Q1 2021 catastrophe bond and ILS market reportFor full details of first-quarter 2021 cat bond and related ILS issuance, including a breakdown of deal flow by factors such as perils, triggers, expected loss, and pricing, as well as analysis of the issuance trends seen by month and year.

Download your free copy of Artemis’ Q1 2021 Cat Bond & ILS Market Report here.

 

For copies of all our catastrophe bond market reports, visit our archive page and download them all.

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