Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Outstanding catastrophe bond capacity by maturity date at 30th June 2012


After a bumper first half of the year in the catastrophe bond and insurance-linked securities market which saw over $3.6 billion of notional volume issued (see our Deal Directory for transaction details), we thought it would be interesting to look ahead and see what that means for maturities in the coming years. Given the large volume of deals issued in the last 18 months, particularly during the last quarter of 2011 and the first half of 2012, there will now be very high levels of cat bond and ILS deals maturing in 2014 and 2015.

Many observers and market participants are forecasting a sustained period of outright growth for the catastrophe bond and ILS market, as the reinsurance market shifts towards receiving more capacity from capital market instruments, with securitization taking a good portion of that shift. For the market to achieve outright growth the notional volume of ILS deals issued has to be greater than the notional volume that matures. 2012 is a good example of this, as with $3.6 billion already issued we have cleared the volume that are scheduled to mature this year already, meaning that the market is sure to achieve growth. However, the greater the notional volume issued this year the greater the volume of maturities three or four years in the future.

With the duration of cat bond and ILS transactions tending to be around three years there are considerable maturities building up for the years of 2014 and 2015. It’s interesting to see how this changes over time. The first chart below is taken from an article we published discussing maturities as at 30th March 2012. As you can see, there are a lot of maturities scheduled for Q2 of 2013 thanks to strong Q2 issuance in 2010. 2014 and 2015 are both already looking like heavy years for maturities in this first chart, helped largely by the issuance in Q4 2011 and Q1 of this year.

Upcoming cat bond and ILS maturing capacity

Upcoming cat bond and ILS capacity maturing as at 31st March 2012 - Source: WCMA Transaction Database

The second chart (below) shows maturities due as at 30th June 2012, so including issuance from Q2 which totalled over $2 billion. As you can see, scheduled maturities have jumped by almost $800m for the year of 2014 while the total maturities expected for 2015 has jumped by more than $1 billion. 2015 in particular is beginning to look like a year during which the market may find it tough to achieve outright growth and the volume of maturities for that year will continue to grow as more 3 year duration cat bonds and ILS deals are issued in 2012.

Upcoming cat bond and ILS capacity maturing as at 30th June 2012

Upcoming cat bond and ILS capacity maturing as at 30th June 2012 - Source: WCMA Transaction Database

These graphs are taken from Willis Capital Markets & Advisory’s (WCMA) recent quarterly ILS market report.

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