Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Upcoming catastrophe bond maturities by peril and expected loss


2012 has been a good year for the catastrophe bond and insurance-linked securities market so far. We’ve seen issuance this year hit the second highest level on record, we currently have just over $5.6 billion worth of 2012 transactions listed in our Deal Directory which is second only to 2007. The market has also reached a record size of close to $15 billion and there is a chance it could grow further by year-end if primary issuance rebounds from a post-Sandy lull in December.

Of course, while the market grows from healthy new cat bond issuance, the flip side is that deals roll off-risk as they mature and come to the end of their lifespan. For the market to achieve outright growth, as it has this year, we need primary issuance volume to be larger than the volume of maturing cat bond and ILS deals. 2012 has achieved this, in fact in Q4 of this year $1.075 billion of outstanding deals will mature but issuance so far in Q4 has already outstripped this with $1.218 billion of new deals coming to market already this quarter.

Still to mature before the end of 2012 out of that scheduled $1.075 billion are a number of cat bond deals, including the following transactions:

Montana Re Ltd. which involves $175m of notes in two tranches.

Longpoint Re II Ltd. $250m of Class A notes (the Class B tranche mature next December).

Loma Reinsurance Ltd. (Series 2011-1) $100m of Class A notes which only had an 18 month risk period.

Nelson Re Ltd. (Series 2008-1) The much disputed Class G notes are currently slated to mature in December but could get extended again if there is no agreement (more details on Nelson Re disputes).

We’ll have to wait and see whether any of these are replaced this quarter or in the first-quarter of 2013.

Looking ahead to 2013 there are a significant volume of outstanding transactions scheduled to mature throughout the year. Data from reinsurer Munich Re’s recent ILS market report shows $285m maturing in Q1 2013, $2.54 billion in Q2, $346m in Q3 and $657m in Q4, a total of $3.828 billion. That number should be easily surpassed by new issuance if market sentiment is anything to go by.

Munich Re said in their recent report that many of the maturing cat bonds in the first-half of 2013 are U.S. peril cat bonds from regular sponsors and are likely to get renewed to some degree. In fact of the $2.825 billion of cat bond capacity due to mature in the first-half of 2013, $2.595 are purely made up of U.S. perils.

The graphic below, from Munich Re’s report, shows a good mix of perils and expected losses of the maturing cat bonds next year. We suspect much of this capacity will get replaced and investor demand for new issues should be strong through the first-half of 2013.

Upcoming catastrophe bond maturities by peril and expected loss

Upcoming catastrophe bond maturities by peril and expected loss - Source: Munich Re Q3 2012 ILS market report

You can download a copy of the recent ILS market report from Munich Re via the Risk Trading section of their website.

Other articles referencing the report include:

ILS funds, flooded with cash, drive ILS and cat bond market to record size

A price-driven placement strategy can make smaller catastrophe bonds cost-effective

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

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