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Original Risk: A Society for Change Agents

Cat bond market hits new record at $25.512bn with Kilimanjaro launch


The outstanding catastrophe bond market has reached a new record size at $25.512 billion and 2015’s cat bond issuance to date has now hit $7.216 billion, thanks to the completion of Bermudian reinsurance firm Everest Re’s latest deal, the $625m Kilimanjaro Re 2015-1.

The outstanding market for catastrophe bonds and related insurance-linked securities (ILS), so those transactions that are still providing protection and that we have listed in the Artemis Deal Directory, has currently never been bigger by our reckoning.

At $25.512 billion the market has grown in outright size since the end of last year, despite the highest level of maturities experienced in a single year in the cat bond markets’ history. So far in 2015 around $6.98 billion of outstanding issuance has matured.

Catastrophe bonds issued and outstanding year-to-date 2015

Catastrophe bonds issued and outstanding year-to-date 2015 - Click the chart for an interactive version

There are another $334 million of outstanding cat bonds included in the Artemis Deal Directory that are scheduled to mature before the end of 2015.

However, with three new cat bonds still being marketed to investors and yet to be issued, the currently $125m Residential Re 2015-2, $200m Nakama Re 2015-1 and $100m Vita Capital VI 2015-1, all of which could upsize, the outstanding cat bond & ILS market is guaranteed to achieve outright growth again at year-end 2015.

Achieving outright growth will be a positive sign, as the cat bond market has not only seen the highest volume of maturities ever, it has also faced fierce competition in 2015 from traditional reinsurance and collateralized reinsurance, as well as being affected by the rationalisation and centralisation of reinsurance buying some cedants have adopted.

The dynamics of the broader reinsurance market continually affect the cat bond market, resulting in fluctuation in terms of issuance and market growth. The fact that the cat bond market continues to grow, despite facing some of its stiffest competition in 2015, is a clear sign of the important and growing role that ILS plays in global reinsurance and risk transfer provision.

With the completion of its latest catastrophe bond, Bermudian headquartered reinsurance firm Everest Re jumps up to the second place in our cat bond sponsors leaderboard, with now $1.575 billion of risk capital outstanding from three Kilimanjaro Re issuances and 5 tranches of cat bond notes.

Everest Re has taken to sharing significant amounts of risk with the capital markets through retrocessional reinsurance catastrophe bonds and also through its Mt. Logan Re collateralised reinsurance sidecar vehicle, in recent years.

If Everest Re continues to embrace cat bonds and third-party capital at this pace, it could even become the top sponsor in our leaderboard.

Top catastrophe bond sponsors (currently outstanding bonds only)

Top catastrophe bond sponsors (currently outstanding bonds only) - Click the chart for an interactive version

Two other interesting facts to point out after the completion of the Kilimanjaro Re 2015-1 cat bond. The deal had a higher coupon than many other transactions in 2015 to date, which has raised the average coupon of the deals we have tracked to 5.1%, which is more than half a percent higher than the average coupon from 2014’s cat bond issuance (4.56%).

However the average expected loss of 2015’s catastrophe bond issuance is also higher, at 2.08%, up from 1.64% for 2014’s issuance, which while resulting in a slightly higher return above the expected loss, of 3.02%, also results in a lower multiple at just 2.45 times the average expected loss.

This suggests that while investors have certainly reached a floor in terms of the coupons they want to receive from cat bond investments, the expected losses continue to rise a little resulting in a lower multiple. It’s worth noting that Kilimanjaro being a big deal has skewed this a little and the multiple may come up slightly by the end of the year, based on the issuance yet to complete.

Don’t miss our next quarterly cat bond and ILS market report, due to be published at the beginning of January.

You can view information on every catastrophe bond issued so far in 2015 in the Artemis Deal Directory.

Artemis Catastrophe Bond & ILS Market DashboardKeep up-to-date with the make-up of the catastrophe bond and ILS market using the Artemis Catastrophe Bond & ILS Market Dashboard, designed to be a simple and effective tool providing key data, charts and statistics on every transaction (there are 390+) contained in our catastrophe bond & ILS Deal Directory.

View the current breakdown of the market in our range of charts, allowing you to analyse key stats on the cat bond market.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

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