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Diversity increases in catastrophe bond issuance, PCS trigger use up


The record level of catastrophe bond issuance seen in 2014 to date has seen an increased amount of diversity brought to market, according to Property Claim Services (PCS), while its data was used within $2 billion of new cat bonds so far this year.

The volume of catastrophe bonds issued during the first-half of 2014 which utilised data from PCS within their triggers totaled $2 billion, up approximately 25% over the first six months of 2013. North American cat bond issuance, so that which would qualify for using a PCS trigger or data given its U.S. and Canadian focus, amounted to $4.8 billion, so PCS triggers covered 42% of the potential issuance.

H1 2014 catastrophe bond issuance and PCS trigger use

H1 2014 catastrophe bond issuance and PCS trigger use

In its latest report on the catastrophe bond market, PCS notes that while the issuance level was impressive the important development was the continued increase in the diversity of the underlying market. Indemnity-triggered European catastrophe bonds, increased Florida market activity, Japanese exposures, new sponsors and large index-triggered deals showed insurance-linked securities (ILS) market participants demonstrating the risk and capital management flexibility that cat bonds can provide as risk transfer.

First time sponsors were also a development in the first-half of 2014, with eight new sponsors tapping the catastrophe bond market for the first time. The average size of issuance also increased, being up by 35% on PCS’ numbers to an average of $317m. Large transactions of course, led by the record $1.5 billion Everglades skew this number though.

The second-quarter represented the majority of H1 2014 issuance, with $4.5 billion on PCS’ numbers. Two of these transactions featured index triggers, representing 31% of North American issuance. If you exclude publicly managed entity sponsored cat bonds the percentage using index triggers rises to 69%. Index trigger use in 2014 so far has only been seen in North American focused catastrophe bonds.

The use of PCS data in catastrophe bonds was up 25% year-over-year in H1 2014. Following the $465m of cat bonds using PCS data in their triggers in the first quarter, sponsors completed four transactions in the second quarter using PCS data, which amounted to over $1.5 billion in new limits. Two transactions (amounting to $1.2 billion) used the PCS Catastrophe Loss Index, and two used PCS for catastrophe designation within an indemnity-triggered catastrophe bond.

H1 2014 PCS data use

H1 2014 PCS data use

The growing issuance of private cat bonds, or cat bond lites, saw further use of the index trigger and data provided by PCS. Of six cat bond lite transactions completed in the first half of 2014, three are confirmed to have used the PCS Catastrophe Loss Index, raising $78m of risk capital or 48% of transactions with information in the public domain.

Cat bond lite issuance by type of trigger

Cat bond lite issuance by type of trigger

First time sponsors also showed a liking for the index trigger or for using PCS data for catastrophe designation for indemnity triggers. Through H1 2014 first-time sponsors sponsored $1.9 billion worth of cat bonds across eight deals, with $750m from three transactions leveraging PCS indices or data within their triggers.

First time cat bond sponsor trigger use

First time cat bond sponsor trigger use

You can download a copy of the full report from PCS via its website.

Find details of every catastrophe bond issued so far in 2014 in our Deal Directory.


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.

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Artemis ILS Asia 2023 - Insurance-linked securities conference in Singapore

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