Catastrophe bond & ILS issuance on track to break Q1 record

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Catastrophe bond and insurance-linked securities (ILS) issuance is on course to break all records in the first-quarter of 2020, with a huge $3.93 billion of catastrophe risk-focused deals helping overall cat bond and related ILS issuance exceed $5 billion for the first time, according to Artemis’ data.

Data from our Artemis Deal Directory shows that issuance levels so far in 2020, combined with a further four transactions that are scheduled to complete before the end of this month, have reached a new high.

At $5.1 billion (so long as the cat bond deals currently still marketing complete at their current size), expected total catastrophe bond and ILS issuance at the end of Q1 2020 is 84% higher than a year earlier, and, roughly 21% above the previous record witnessed in Q1 2018, of $4.24 billion.

In recent years, as highlighted by the Artemis Deal Directory and quarterly cat bond and ILS market reports, and since the issuance of the first mortgage ILS deal in 2015, mortgage risk transactions have, year-after-year, increased in number and size.

In fact, for the last three years, annual total catastrophe bond and ILS issuance has surpassed the $10 billion mark. However, absent the inclusion of mortgage ILS deals this wouldn’t have been the case in 2019, for example, when a huge $4.5 billion of mortgage risk came to market.

Furthermore, while mortgage ILS deals have been growing in prominence in recent times, cat risk deals have declined somewhat in certain quarters as investor caution became heightened on the back of consecutive heavy loss years and subsequent loss creep.

By no means have mortgage ILS deals slowed in 2020 with two transactions bringing a combined almost $1 billion of mortgage risk to market in the first-quarter of the year. The difference, then, when compared with Q1 2018 issuance and representing a continuation of the trend witnessed in Q4 2019, is that catastrophe risk-focused deals have rebounded in 2020.

When excluding mortgage ILS deals, Q1 2020 issuance totals an impressive $4.13 billion. Again, it’s worth noting that this is based on all deals still marketing completing at their current size, so it could be that this figure either grows or shrinks slightly between now and the end of March.

For Q1 2018, the exclusion of mortgage ILS deals takes total issuance to $3.81 billion, which is down almost 8%, or $314 million when compared with Q1 2020.

As well as mortgage risk, both the first-quarter of 2018 and 2020 featured $200 million of healthcare risk from Aetna through its Vitality Re issuance platform.

Excluding these deals, and the Artemis Deal Directory shows that pure catastrophe risk transactions in the first-quarter of 2018 amounted to $3.61 billion, while for the first-quarter of 2020, pure catastrophe risk issuance totals a record $3.93 billion.

Almost $4 billion of catastrophe risk issuance is truly impressive and shows that with or without mortgage ILS deals, first-quarter 2020 catastrophe bond and ILS issuance is on track to smash all previous records.

If we look at our data and subtract all mortgage ILS and all privately placed cat bonds we still get to a record level of issuance when only looking at 144A cat bonds.

By our numbers, Q1 2020 issuance, excluding private and mortgage ILS, will reach $4.04 billion if the remaining deals complete at their targeted size, beating Q1 2018’s roughly $3.85 billion of 144A cat bond issuance.

The ILS investor base has become increasingly mature and sophisticated in recent times and after the market’s impressive response to recent challenges from losses and trapped collateral, it appears the ILS community is as committed as ever to the global catastrophe reinsurance space.

As of today, including the completion of Mexico’s latest cat bond transaction the $485 million IBRD / FONDEN 2020, overall catastrophe bond and ILS issuance stands at $4.53 billion, or $3.6 billion when excluding the mortgage ILS deals issued, and still an impressive $3.4 billion when looking at catastrophe risk linked deals only.

As the Artemis Deal Directory shows, a $130 million Armor Re II Ltd. (Series 2020-1) deal, a $250 million Sanders Re II Ltd. (Series 2020-1) deal, a $125 million Integrity Re II Pte. Ltd. (Series 2020-1) deal, and a $75 million Akibare Re Pte. Ltd. (Series 2020-1) transaction are set to complete before the end of the month, taking total issuance above $5 billion for the very first time in Q1.

If the above transactions fail to shrink or upsize before completing, then total catastrophe bond and related ILS issuance will amount to $5.11 billion in Q1 2020, according to Artemis’ data, which will be a record for the first-quarter period.

Should they upsize at all then total Q1 issuance could be even higher.

Details on every transaction is available in our extensive catastrophe bond and related ILS Deal Directory.

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