Swiss Re Insurance-Linked Fund Management

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Q1 2012 catastrophe bond and ILS issuance hit $1.493 billion, over $2 billion year-to-date


The first quarter of 2012 saw record catastrophe bond and insurance-linked security issuance with the total volume of cat bonds and ILS issued hitting $1.493 billion at the end of March. This beat last year’s record Q1 issuance of $1.015 billion by $478m as both regular sponsors and some new issuers pushed the volume of Q1 cat bonds to new highs. This continued the trend from Q4 2011 which also saw strong momentum with record issuance.

Nine catastrophe bonds and ILS were issued in Q1 2012, providing almost $1.5 billion in new capacity for their sponsors. There was a lot of issuance from repeat sponsors renewing cover from transactions that matured but also an encouraging amount of transactions involving new ceding insurers who ultimately benefit from the cover the cat bond provides.

Investors stepped up to continue to commit new capital into the cat bond and ILS market to help keep up with the rate of issuance and this trend has been seen continuing into Q2. Reinsurance broker and active ILS market participant Aon Benfield provide some commentary on the capital markets and insurance-linked securities in their recently published Reinsurance Market Outlook which discusses the state of the market at the 1st April renewals. In it they say that investors in cat bonds and ILS have provided record first quarter capacity. They say that spreads in cat bond and ILS securities remain very attractive to institutional investors seeking yield and a decent interest return.

Aon Benfield also note that sponsoring insurers continue to bring incremental new demand to the capital markets rather than to the traditional markets where there is some fear of adding additional capacity to a market which is fairly price uncertain right now. This statement bodes well for the next few months issuance in the run up to the mid-year renewals as that price uncertainty is unlikely to go away at least until after the larger renewal season is over.

The chart below shows catastrophe bond issuance by quarter from 2008 to present.

Catastrophe Bond Issuance by Quarter

Catastrophe Bond Issuance by Quarter - Source: Aon Benfield Securities Inc.

Aon Benfield say in their report that the market is on track to exceed $5 billion of issuance this year thanks to the brisk first quarter and the active forward pipeline of new cat bond deals.

Here’s a table of all of the cat bond and ILS transactions issued in Q1 2012:

Issuer Sponsor Risks / Perils covered Size Date
Combine Re Ltd. (Series 2012-1) Swiss Re America U.S. hurricane, U.S. earthquake, U.S. severe thunderstorm, U.S. winter storm $200m Mar 2012
East Lane Re V Ltd. (Series 2012-1) Chubb Group U.S. hurricane, U.S. severe thunderstorm $150m Mar 2012
Mystic Re III Ltd. (Series 2012-1) Liberty Mutual U.S. hurricane, U.S. earthquake $275m Mar 2012
Queen Street V Re Ltd. Munich Re U.S. hurricane, European windstorm $75m Feb 2012
Embarcadero Re Ltd. (Series 2012-1) California Earthquake Authority California earthquake $150m Jan 2012
Kibou Ltd. (Series 2012-1) Hannover Re for Zenkyoren Japan earthquake $300m Jan 2012
Ibis Re II Ltd. (Series 2012-1) Assurant U.S. hurricane $130m Jan 2012
Successor X Ltd. (Series 2012-1) Swiss Re U.S. hurricane, European windstorm $63m Jan 2012
Vitality Re III Ltd. (Series 2012-1) Aetna Life Insurance Company Medical benefit claims levels $150m Jan 2012

And the bumper issuance doesn’t seem ready to stop just yet as Q2 2012 has started with four deals already in the marketplace. Three of them have completed in the last week leaving just Everglades Re actively being marketed but we understand that there are more deals to come before April is out. This brings the total volume of completed cat bond and ILS deals so far this year to well over $2 billion.

Issuer Sponsor Risks / Perils covered Size Date
Everglades Re Ltd. (Series 2012-1) Citizens Property Insurance Florida hurricanes $200m Apr 2012
Pelican Re Ltd. (Series 2012-1) Louisiana Citizens Louisiana hurricane $125m Apr 2012
Akibare II Ltd. Mitsui Sumitomo Insurance Co. Ltd. Japan typhoon (wind & flood losses) $130m Apr 2012
Blue Danube Ltd. (Series 2012-1) Allianz Argos 14 GmbH U.S. hurricane, U.S. earthquake, Canada earthquake, Caribbean hurricane, Mexico hurricane $240m Apr 2012

We’ll keep you updated as the Q2 catastrophe bond pipeline continues to unfold.

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