Cat bond issuance is down by double digits through the first 9 months of 2016 compared to the previous year, thanks to a slower-than-expected second quarter and a Q3 that was predictably light, the Property Claims Services unit of Verisk Insurance Solutions concluded in a new report.

A $225 million transaction using the PCS Catastrophe Loss Index and the latest indemnity-triggered transaction covering risks in Japan were the only two catastrophe bonds that came to market in Q3, according to the report. In the 2015 third quarter, issuance rose to only $400 million from three transactions, two of which covered risks outside of the United States. The other addressed California earthquake, PCS said.

For the first 9 months of 2016, there have been $3.7 billion in new insurance and reinsurance catastrophe bond issuance, according to PCS. That’s a 15 percent decline compared to the same period in 2015.

Through the first half of 2016, total cat bond issuance hit $2.8 billion through 14 transactions, and that was down from $4.1 billion and 16 transactions through the 2015 first half. Out of that total number, $2 billion came through in Q1, and that is termed as a market record, PCS said in a previous report.

According to PCS, the drop in cat bond issuance is not uniform. Use of Property Claims Services Data in limit raised is up sharply from both 2015 and 2014, according to the report. On the other hand, publicly managed entities did not return to the market in 2016 even though they heavily used catastrophe bonds in 2015, PCS said. As well, only a handful of first-time sponsors came to the market so far in 2016.

One bright spot: cat bond light is growing even as the broader catastrophe bond market remained quiet during Q3. According to PCS, four transactions in this space led to $122.4 million in new limits.

“The continued strong use of cat bond lite indicates that the market has seen the value of securitization for private transactions in conjunction with a streamlined in insurance process,” the PCS report noted. “The structure, rigor and discipline involved in issuing through a cat bond lite platform may give this form of issuance an edge over private catastrophe bonds.”

Source: PCS/Verisk Insurance Solutions

Topics Catastrophe Trends