Swiss Re Insurance-Linked Fund Management

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No doubt 2020 will be a banner year for cat bonds: Klugman, Swiss Re


The catastrophe bond market can look forward to a banner year in 2020, according to Judith Klugman, Head of ILS Sales for reinsurance firm Swiss Re’s Alternative Capital Partners unit.

judy-klugman-swiss-reSpeaking to A.M. Best TV at our recent New York insurance-linked securities (ILS) market conference, ILS NYC 2020, Klugman discussed why last year was seen to be a little slower for the catastrophe bond market.

“A lot of people were a bit disappointed with the level of new issuance in 2019. But when you actually dug into that, what we saw is that there weren’t actually a lot of maturities last year.

“In the previous years, prior to 2019, there had been some very large deals which created that high new issue volume and those deals just weren’t maturing. That, coupled with the fact they were just smaller average deal sizes, the overall level was down. I think that was a big surprise to many participants,” Klugman explained.

Despite a lower headline issuance number of catastrophe bonds in 2019, Klugman believes there were positive signs of a market still exhibiting healthy activity.

“Within the amount that was issued there was some very innovative transactions that were brought to market and I think that will have some legs in terms of the future trends,” she said.

Mentioning the first catastrophe bond transaction to benefit the government of the Philippines, Klugman said, “We certainly see that type of transactions, from governments looking to the ILS market for that support, we see that having a lot of potential moving forwards from other governmental entities.”

Klugman also highlighted the innovative Sierra Ltd. cat bond, that benefits a mortgage focused investment manager that was looking to hedge its earthquake risk, as a sign of the cat bond market’s health.

“They made the decision to go ahead and buy parametric earthquake protection to protect them against that potential,” Klugman explained. “Nobody forced them to do that and we certainly are hopeful that we’ll see other asset management companies and maybe even Fannie and Freddie, entities that have large mortgage exposures, come into the capital markets.”

Referring to these two important deals from the latter part of 2019, Klugman continued, “Those are two emerging market trends that, whether it’s governmental entities for the resiliency, or asset management companies, that there’s a lot of applicability of what we do in insurance-linked to a broader market.”

Look ahead Klugman said that recent market trends make her company, global reinsurance firm Swiss Re, “very hopeful in terms of where we see the market going forward.”

“I’m extremely optimistic,” she explained. “Last year there weren’t a lot of large maturities, well this year the maturities are through the roof.

“We’ve already seen a number of new issuance in January, in excess of a couple of billion dollars.

“When I see the pipeline of what the maturity schedule is going out over the year, I have no doubt that this is going to be a banner year.”

Already this year we have counted just over $3 billion of completed catastrophe bond and related ILS issuance in our Deal Directory, with another $1.365 billion from four newer deals we have listed that are yet to close.

Yes, this includes some mortgage ILS transactions, but so too did the biggest first-quarter ever, Q1 of 2018, when issuance reached $4.237 billion.

2020 is already set to beat that tally and we still have some six weeks of the quarter left for additional issuance to come to market. A banner year for catastrophe bonds and related ILS transactions seems almost assured.

For comparison’s sake, if you exclude the one mortgage ILS transaction from Q1 2018 you still get $3.812 billion of issuance. In 2020, if you exclude the two mortgage insurance-linked securities deals that have come to market so far, you get $3.34 billion.

So this year is trailing slightly behind the Q1 issuance record, on a like-for-like basis excluding mortgage ILS, but there is still time for that gap to be narrowed further.

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