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Cat bond market grew 30% in last year. $8B-$9B expected in 2014: Willis


The catastrophe bond market grew by a massive 30% over the course of a year, with the outstanding cat bond market leaping from $16.2 billion at end of Q2 2013 to $21 billion by end of Q2 2014, according to the latest report from Willis Capital Markets & Advisory (WCMA).

That is a stunning measurement of outright growth, demonstrating the incredible period of catastrophe bond issuance just witnessed in the last year and the appetite to tap the capital markets for reinsurance coverage. As we wrote recently, the 12 month trailing issuance figure for new cat bonds actually passed $10 billion (on our numbers) in May, a record by a distance.

Willis’ investment banking, capital markets and ILS unit, WCMA tracks outstanding non-life catastrophe bonds, but not as many private deals as Artemis. Hence the difference in numbers. WCMA put the size of the catastrophe bond market at $21 billion at the end of the second-quarter, up 30% (or $4.8 billion) from the $16.2 billion it recorded a year earlier. Artemis puts the size of the market, including private and life deals, at just over $23 billion currently.

WCMA notes in its latest quarterly cat bond report that Q2 of 2014 was a record quarter with $4.5 billion of issuance (Artemis recorded $4.634 billion) beating the Q2 2007 figure of $3.5 billion (Artemis recorded $3.58 billion). WCMA recorded $5.7 billion of first-half 2014 cat bond issuance, plus another $200m from the Vitality health insurance linked deal (Artemis recorded $6.219 billion in total).

Tony Ursano, CEO of WCMA commented; “In Q2, the ILS market continued to evolve, progressing its gradual transition from a niche and emerging market into a more mainstream alternative asset class. Not only did we see the largest ever single transaction cat bond in Q2, but we also witnessed several other notable achievements including the first indemnity-trigger cat bond for a primary company’s Euro Wind exposure, the first yen-dominated deal, as well as the fastest ever takedown.”

2014 catastrophe bond and ILS issuance has already broken many records, as we wrote here last week, with the biggest bond, the biggest quarter ever, the biggest month and the 12 consecutive month issuance figure which passed the $10 billion mark during Q2 2014 for the first time.

WCMA highlights a number of other achievements, including the first indemnity trigger European windstorm cat bond for a primary insurer in Generali’s Lion I Re Ltd., the first yen denominated cat bond in Group Sompo’s Aozora Re Ltd. (Series 2014-1) and the fastest takedown ever which was Heritage’s second deal of the quarter, Citrus Re Ltd. (Series 2014-2). Alongside all the other records we detailed, Q2 2014 looks increasingly impressive.

Looking ahead, WCMA said that it expects 2014 full-year issuance of cat bonds will be in the range of $8 billion to $9 billion, with an expected lull in the third quarter followed by an acceleration of new deal flow as we approach the end of the year. That would be a record year and given the very rapid issuance to date in 2014 we believe that is likely.

WCMA’s report also notes a number of issues which could even help to stimulate more issuance going forwards, such as the potential for indemnity retrocessional cat bonds, something that investors may have a few opinions on, as well as the potential for greater use of catastrophe bonds by corporate sponsors.

Retro indemnity cat bonds could be possible, on a regional and multi-peril basis, but would require significant tightening of terms compared to the worldwide retro market that is currently favoured by large reinsurers looking for retrocession.

Corporate catastrophe bonds are certainly a prospect that we hope to see more of, with cat bonds very well suited to covering large corporate or single entity catastrophe risks. This remains a likely prospect for the cat bond market in the future, particularly if corporates are increasingly urged to disclose their catastrophe risk exposure and protect their balance sheet against them.

Ursano continued; “While we expect Q3 to be relatively quiet, Q4 should be busy even if spreads remain flat or have a slight uptick against the back drop of a loss free third quarter. Given the spread environment and the busy second quarter, we feel optimistic that 2014 will end up a record setting year for the cat bond market. By year end, we expect eight to nine billion dollars in total non-life cat bond issuance, whilst the broader ILS market, including private deals and deals with coverage extending beyond property cat, should exceed this considerably.”

You can find WCMA’s Q2 ILS market report via its website.


Artemis’ Q2 2014 Catastrophe Bond & ILS Market Report – The Biggest Quarter, The Biggest Catastrophe Bond

Artemis Q1 2014 Catastrophe Bond & ILS Market Report - A Record QuarterWe’ve now published our Q2 2014 catastrophe bond & ILS market report.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the record second-quarter of 2014, looking at the new risk capital issued and the composition of the transactions completed during Q1 2014.

Download your copy here.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

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