Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Outstanding cat bond & ILS market passes $23 billion for first time


The amount of risk capital outstanding in catastrophe bonds and insurance-linked securities listed in the Artemis Deal Directory has passed a new milestone, reaching a record all-time high of $23.062 billion with the completion of the latest transactions.

The outstanding cat bond and ILS market has been growing steadily through 2014 to date, with record issuance so far this year of $6.219 billion helping the outstanding market total to rise by more than $2.5 billion this year to pass $23 billion for the first time.

The first catastrophe bond from the Texas Windstorm Insurance Association (TWIA), Alamo Re Ltd. (Series 2014-1), completed yesterday and the $400m of notes issued, which listed on the Bermuda Stock Exchange (BSX), took the outstanding market size to $23.032 billion.

Now, with the addition of the $30m World Bank cat bond issue for the Caribbean Catastrophe Risk Insurance Facility (CCRIF) today, the total has risen again to reach the new record level of $23.062 billion.

These numbers are based on transactions added to the Artemis Deal Directory, so includes catastrophe bonds, life insurance linked securitizations, mortality ILS, longevity bonds and a number of privately issued cat bond lite type deals. We feel this is the most complete record of the cat bond and ILS markets issuance so our number can tend to be above other market commentators.

Observant readers will have noticed that we now have the current years issuance total and the current size of the outstanding cat bond and ILS market prominently displayed on the Artemis homepage. These numbers will be updated as deals come to market, launch and as deals roll-off risk and mature.

The record is once again testament to the interest in insurance linked investments being shown by investors. However it’s worth noting that for all of the mainstream press comments regarding ‘yield hungry’ investors, the outstanding market has only grown by about $2.5 billion or so in six months.

Yes, there have been a significant amount of maturities in 2014 to date, but the majority of that capital appears to have been reinvested in the asset class. That means that in cat bonds in particular, only approximately $2.5 billion of additional capital has been added to the space to help it grow from the $20.5 billion of risk capital outstanding we recorded at the end of 2013 to the $23.062 billion we see today.

Yes that’s impressive growth of around 12% but it’s hardly the rabid, yield hungry, investor rush that some papers would have you believe had occurred in 2014, particularly when you compare it to the growth of other alternative asset classes in the same period.

Catastrophe bonds and ILS remain a niche asset class, growing in attraction and investor awareness or consideration for sure, but still niche in terms of their potential audience. However the asset class provides large institutional investors, such as pension funds, with overall portfolio boosting and diversification qualities which make it a sure bet for further growth and increasing interest.

It will be interesting to see how the rest of 2014 pans out and to see just how big the outstanding catastrophe bond and ILS market could be by year-end.

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