Cumulative catastrophe bond issuance now exceeds $80 billion

Strong investor and sponsor appetite in 2016 helped global catastrophe bond issuance surpass $7 billion for the fourth year running, taking cumulative issuance since the market began to more than $80 billion, according to the Artemis Deal Directory.

The Artemis Q4 and full-year 2016 Catastrophe Bond & ILS Market Report, released earlier this month, details the $2.13 billion of new risk capital brought to market in the final quarter of the year, and also looks at the composition of the $7.052 billion of issuance that occurred throughout 2016.

Despite issuance in 2016 failing to reach the heights witnessed in 2015 ($7.89 billion), 2014 ($9.09 billion) and 2013 ($7.67 billion), the outstanding market did again achieve outright growth and actually ended 2016 at its largest ever size, of $26.82 billion.

As a result of the strong issuance levels witnessed in recent times, which becomes even more impressive when considering the pressures on rates and pricing in the global property catastrophe space (the main focus of the ILS sector, so far), cumulative catastrophe bond issuance stands at an impressive $81.43 billion.

Cumulative catastrophe bond issuance by year

According to data from the Artemis Deal Directory, the first catastrophe bonds were issued in 1997 and, combined; the four transactions (George Town Re Ltd., Residential Reinsurance Ltd., SR Earthquake Fund, Ltd., and Parametric Re Ltd.) took full-year 1997 issuance to $785.5 million.

In the years after this full-year catastrophe bond issuance hovered somewhere between $1 billion and $1.4 billion, until breaching the $2 billion mark for the first time in 2003 (total issuance in 2003 was $2.47 billion). Issuance the following year dipped substantially to around $1.1 billion, but increased to beyond $2.4 billion in 2005.

In 2006 issuance nearly hit $5 billion for the first time, and then in 2007 more than $8.1 billion of catastrophe bond issuance came to market, which remains the second busiest year, in terms of risk capital issued, in the market’s history.

Following the huge volume of deals brought to market in 2007 cumulative issuance stood at $26.09 billion, so an increase of more than $25 billion in the market’s then ten-year history.

Despite insurance-linked securities (ILS) and catastrophe bonds performing well during the U.S. financial crisis, due to the asset classes’ uncorrelation with broader financial market volatility, 2008 and 2009 saw issuance levels dip again, to $2.79 billion and $3.2 billion, respectively.

However, in 2010 issuance exceeded $5.4 billion, before shrinking the following year when issuance levels fell just shy of $5 billion. In 2012 $6.33 billion of new risk capital came to the global catastrophe bond market, the only time issuance had exceeded $6 billion apart from the record-breaking levels seen in 2007.

In the four years after 2012 catastrophe bond and ILS issuance has consistently exceeded $7 billion, and in 2014 the Artemis Deal Directory recorded a staggering $9.09 billion of issuance, the most witnessed since the market’s inception roughly two decades ago.

It’s from 2012 onwards that the market has really started to expand and influence the broader insurance and reinsurance marketplace. A time when cumulative issuance jumped from $42.51 billion at the end of 2011, to the $80.56 billion recorded today.

When compared to the $9 billion+ of issuance witnessed in 2009 it’s fair to say that catastrophe bond issuance has subsided somewhat, but importantly, at the end of 2016 the outstanding market was at its largest ever size of $26.82 billion, and some way above the $25.002 billion recorded at the end of 2014.

So growth is apparent and expected to continue, despite the majority of ILS business now coming from the collateralised reinsurance space as opposed to the catastrophe bond arena, something that has been dictated by broader, challenging reinsurance market conditions.

The marketplace is expected to expand further in the coming months and years, and industry leaders and observers have noted a desire among sponsors and investors to enter new, potentially more profitable and more diversifying business lines and regions.

Only time will tell if the ILS space can continue down its impressive growth path at the rate the marketplace has become accustomed to, but it does appear that the reported $75 billion+ of alternative reinsurance capital is here to stay, and will look to play a more meaningful role in the broader insurance and reinsurance markets of the world.

Artemis has tracked almost every one of the 400+ catastrophe bond transactions in our Deal Directory, since we launched in 1999.

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