2012 has been a landmark year for the catastrophe bond market, with the second highest level of issuance on record (as we wrote back in October here) for a single year which, according to insight from Willis Capital Markets & Advisory (WCMA) has now taken the cat bond market to an all time high in terms of size. At the end of the third-quarter of 2012 the size of the outstanding natural catastrophe bond market hit $14.4 billion, higher than the $14.1 billion they measured at the end of 2007.
WCMA only discuss natural catastrophe bond transactions in their quarterly report, so the numbers are lower than other market participants quote, but it is testament to the health of the market, continued commitment from cat bond sponsors and high levels of investor interest that the market reaches this high in 2012.
The size of the cat bond market managed to grow to this all time high thanks to there being no maturities in Q3 of this year. In Q4 there are just over $1 billion of cat bonds due to mature. We’ve already had around $750m of completed issuance in Q4 and the latest Residential Re bond should take that to over $1 billion, meaning that we are destined to finish 2012 with the market at an all time high.
Of course the one factor that could reduce the overall size of the market would be losses to cat bonds caused by hurricane Sandy, or another event before year-end, but at the moment any losses resulting from hurricane Sandy are expected to be minimal so we still expect the size of the market to grow.
The chart below, showing issued capacity, capacity outstanding and number of cat bond deals, is taken from the recently published Q3 2012 ILS market report from WCMA, which you can read more about here.