Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

PCS index triggers used for $1.6 billion of catastrophe bonds so far in 2012


The success of Property Claims Services (PCS) industry-loss index and its usage in the catastrophe bond sector is highlighted in a report published today by PCS which discusses the cat bond market in the first-half of 2012. The PCS index has become one of the dominant trigger types used in the catastrophe bond market with 9 out of 16 cat bond transactions issued in the first-half of 2012 using a PCS trigger within the deal structure.

The total value of all cat bond transactions which came to market in the first-half of the year and which used a PCS trigger was $1.6 billion, up 33% from the $1.2 billion using a PCS trigger in H1 2011. PCS says that the average size of a cat bond using a PCS trigger has also grown, up from $171m to $178m from 2011 to 2012, that’s another good sign of the health of the market as it shows average cat bond deal sizes gradually on the increase.

The chart below shows the growth in PCS index trigger use in the cat bond market from the first-half of 2011 compared to the first-half 2012.

PCS trigger usage in catastrophe bond transactions

PCS trigger usage in catastrophe bond transactions

For the first time PCS triggers have been used on a cat bond providing cover outside of the U.S. this year, the Blue Danube Ltd. (Series 2012-1) cat bond uses a PCS trigger for Canadian earthquake risks, a first for PCS and also for the cat bond market as we haven’t seen an industry-loss index based Canadian quake risk deal before.

You can see the details of every cat bond, including what trigger each deal has used, in our comprehensive Deal Directory.

PCS note some other interesting market trends in their report. They noticed that four-year terms are becoming more common in the cat bond market, this will benefit those seeking protection who can lock in cover for longer periods of time now that investors are becoming more accepting. Large, indemnity-triggered catastrophe bonds are the other trend that has become apparent in the first half of this year. Everglades Re Ltd. (Series 2012-1) at $750m become the largest single tranche cat bond ever, Mystic Re III Ltd. (Series 2012-1) achieved $275m as an indemnity deal and Long Point Re III Ltd. (Series 2012-1) $250m. Those three issuances made up a large amount of the year-on-year growth in the cat bond market, but PCS don’t see this becoming a trend for huge deals, rather they suggest sponsors might make use of established shelf-programs to issue smaller cat bond deals more frequently.

On the subject of how much cat bond issuance we could see over the remainder of 2012, Gary Kerney, assistant vice president of PCS, said; “Is 2012 like 2007? That’s the big question everyone seems to be asking. The big indemnity-triggered transactions from then and now — Merna Re and Everglades Re — certainly make you think about it. And overall issuance volume is expected to be in the neighborhood of the 2007 results.”

“At the beginning of hurricane season, it’s just too soon to tell,” he concludes. “One catastrophe could change everything.”

A PCS trigger is also featuring in the first 144A cat bond transaction of Q3 with the U.S. hurricane component of Queen Street VI Re Ltd. triggered based on reported PCS index figures.

This is the first report that PCS have issued on the cat bond market and it’s interesting to get a little more data on the use of their index as a trigger and to hear their perspective on the cat bond marketplace. You can find their full report via the PCS press release here.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

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

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.