Q3 2016 Cat Bond Market Report – Weather risk returns, private deals, market growth

Our latest report on activity in the catastrophe bond and insurance-linked securities (ILS) market has now been published. The report, ‘Q3 2016 Catastrophe Bond & ILS Market Report – Weather risk returns, private deals, market growth‘, analyses a third-quarter featuring $1.087 billion of issuance.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the third-quarter of 2016, looking at the new risk capital issued and the composition of transactions completed during Q3 2016.

Data from the Artemis Deal Directory shows that the third-quarter of 2016 saw catastrophe bond and ILS issuance surpass $1 billion for the third time in the last decade, exceeding the ten-year average of $742 million.

Issuance in Q3 totalled $1.087 billion from eight transactions, making it the third most active Q3 of the last decade, in terms of deal volume, and one of the busiest in the market’s history in terms of number of deals. Strong investor appetite for catastrophe bond and ILS investment saw the outstanding market size increase from the $25.174 billion recorded at the end of Q2, to $25.449 billion.

In line with the second-quarter of this year, and in terms of number of deals, private catastrophe bond issuance dominated the marketplace in Q3, as smaller deals were issued through frequently used issuance platforms. Offsetting the smaller size of private cat bonds issued in the quarter, returning sponsors’ of larger transactions helped the outstanding market grow since the end of the second-quarter.

8 deals consisting of 9 tranches of notes came to market in Q3, resulting in $1.087 billion of new catastrophe bond risk capital issued.

In terms of number of deals, unknown sponsors dominated issuance in the third-quarter as a number of smaller, private deals came to market. However the six private, or cat bond lite, transactions that were issued in the third-quarter amounted to just $162 million, or 15% of total risk capital issued.

Indemnity protection dominated issuance in the third-quarter. Sponsors secured $775 million of indemnity cover, accounting for roughly 72% of total risk capital issued in the quarter, while roughly $272 million, or 25% of issuance utilised an industry loss index trigger and 3%, or roughly $31 million of new risk capital a parametric trigger.

The Japanese earthquake peril dominated the quarter, with $700 million of issuance from the latest Nakama Re transaction making up almost 65% of total Q3 catastrophe bond issuance. The innovative weather risk cat bond issued through the Market Re platform provided an interesting diversification opportunity, while the remainder of the risk capital issued was exposed to U.S. perils.

Despite failing to break any records, catastrophe bond and ILS issuance in the third-quarter of 2016 was actually only the fourth time in the market’s history that the period saw issuance surpass $1 billion.

The outstanding catastrophe bond and ILS market at the end of the third-quarter totalled $25.449 billion, which is actually $423 million larger than at the end of Q3 2015, according to Artemis’ data.

Typically, the third-quarter of any year is the quietest for catastrophe bond issuance, and while Q3 2016 failed to record issuance levels as high as those seen in Q1 and Q2, it was still an impressive quarter for the space.

With just $755 million of cat bonds scheduled to mature in the final quarter of 2016, an average volume of issuance should see the outstanding market end 2016 back above the $26 billion threshold.

Also in this Q3 2016 report we feature commentary on ILS investor perspectives on the cat bond market from co-editor GC Securities, the investment banking, capital markets and ILS specialist arm of reinsurance broker Guy Carpenter. Download the full report to read GC Securities commentary on recent cat bond investor trends.

For full details of the quarter, including a breakdown of the issuance by factors such as perils, triggers, expected loss, pricing, and analysis of the issuance trends by month and year, download your copy of Artemis’ Q3 2016 Cat Bond & ILS Market Report here.

For copies of reports from previous quarters, visit our archive page to download them all.