Cat bond rebound helps Q4 issuance hit record $3.3bn: Report

A rebound in property catastrophe risk-linked transactions has helped issuance of catastrophe bonds and related insurance-linked securities (ILS) reach a record level in the fourth-quarter of 2019, with $3.3 billion of new deals recorded by Artemis.

Our latest quarterly report on the catastrophe bond and related insurance-linked securities (ILS) market is available for you to download now.

The report, ‘Q4 2019 – Catastrophe risk rebounds in a record fourth-quarter’, analyses a record fourth-quarter that saw $3.3 billion of new cat bond and related ILS issuance and analyses the composition of transactions issued during the three-month period, as well as providing a review of the full-year.

In the fourth-quarter of 2019, catastrophe bond and ILS issuance reached a huge $3.3 billion, which is $1.1 billion above the ten-year average for the quarter according to Artemis’ data from our extensive cat bond Deal Directory.

Issuance was helped by a resurgence in issuance of catastrophe risk focused cat bonds, that contributed the majority of the quarter’s deal flow in Q4 2019.

After a few consecutive quarters of slow-down, the catastrophe bond market accelerated towards the end of 2019, as sponsors took advantage of investor appetite and market conditions to bring significant flow of new deals to market.

Since 2015, only once has the final quarter of the year surpassed the $2 billion of issuance mark, so the fact Q4 exceeded $3 billion is really quite impressive.

Combined with the previous three quarters of the year, Q4 issuance took the total outstanding market size to a new end-of-year high, of $41 billion as of December 31st 2019.

Mortgage insurance risk was again a strong feature of the market in Q4 as insurers continued to look to the capital markets and the cat bond structure for reinsurance capacity, accounting for more than $880 million of the quarter’s issuance.

However, catastrophe risk-focused deals rebounded significantly in the quarter to reach $2.4 billion of issuance.

Impressively, the fourth-quarter of 2019 has been the largest quarter for property catastrophe related risk issuance in the cat bond market since Q2 2018, signalling a rebound in appetite and capital availability for these securitised reinsurance and retrocession deals.

The $3.3 billion of total new risk capital issued in the quarter came from 15 transactions consisting of 28 tranches of notes, as shown by the Artemis Deal Directory.

International multi-peril cat bond deals accounted for the largest slice of Q4 issuance, at $1.33 billion, or 40% of the quarter.

These large retrocessional reinsurance deals from regular sponsors Everest Re and AXA XL helped to drive the quarterly total higher.

More details on every 144a catastrophe bond and private cat bond deals issued during the quarter can be found in our new report.

The return of retro cat bond deals from reinsurance firms also helped to drive trigger diversification for the quarter, with indemnity triggers in the end only accounting for 48% of issuance, while industry loss index triggers made up 41%.

Despite falling year-on-year, catastrophe bond and related ILS issuance still reached into double-digit billions in full-year 2019.

At $11.1 billion issuance for full-year 2019 was the third highest we’ve recorded.

However, it’s worth noting that as in both 2017 and 2018, this was helped significantly by mortgage ILS deals, which in 2019, accounted for 41% of total issuance.

While these mortgage ILS deals are increasingly driving annual issuance levels in the ILS market, Artemis’ data shows that, if you remove the mortgage ILS deals, the size of the outstanding catastrophe bond and ILS market has still grown in size every year.

Furthermore, at year-end 2019 the outstanding cat bond and related ILS market would still be at a record size of more than $36 billion, even absent the mortgage ILS transactions.

Catastrophe bond market conditions look bright for 2020 as well, with already $800 million of new issuance set to complete in the coming week or so.

This bodes well for issuance through the first-quarter of 2020, as reinsurance capacity from the capital market continues to be attractively priced and abundantly available, as ILS funds and cat bond investors continue to seek out new opportunities to deploy capital.

Stay tuned to Artemis as we move into 2020 and we’ll keep you updated on all cat bond and related ILS transaction issuance, as well as evolving trends in the catastrophe bond and insurance-linked securities (ILS) marketplace.

For full details of fourth-quarter 2019 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 by month and year.

Download your free copy of Artemis’ Q4 2019 Cat Bond & ILS Market Report here.

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