A Mature Cat Bond Market? 2015 Issuance Dropped 25% Over 2014

January 6, 2016

Cat Bonds Money WaveThe catastrophe bond market may be showing some steady signs of maturity.

Bond issuance, measured by new limit, came in at $6 billion in the 2015 fiscal year. That’s one of the five most active catastrophe bond issuance years in market history, but it reflects a 25 percent drop from 2014, according to the latest report from the Property Claim Services unit of Verisk Insurance Solutions.

Why was there such a drop?

One factor, according to PCS, was “continued insurance-linked securities market maturity, as cedents and markets explore the full range of risk transfer alternatives available to them in this sector.”

Also, the drop in original issuance may reflect a new level of market sophistication, according to the report.

“Perhaps counterintuitively, the decline in original issuance indicates that the market continues to gain a deeper understanding of how ILS can support improved risk and capital management worldwide,” the PCS report concluded. “The ongoing rise in collateralized reinsurance use and the relative upsurge in industry loss warranty activity demonstrate a continued commitment to ILS, as well as a growing sense of which approach makes the most sense for different cedent requirements.”

PCS said that the year-over-year decline, in terms of dollars, came from the shortage of extremely large transactions.

In 2015, the average transaction size dropped nearly 25 percent to $250 million. But in 2014, there were deals, such as the nearly $1 billion in limit that came from the Kilimanjaro series, with Sanders Re adding $750 million in just one transaction. As well, Everglades Re raised $1.5 billion in protection. Those high numbers don’t always occur every year due to multiyear transactions that are the norm, PCS said.

Some other findings in the PCS report:

Full details can be found in: “Market Growth and Original Risk: PCS FY 2015 Catastrophe Bond Report.”

Source: Property Claim Services/Verisk Insurance Solutions