New issuance pushes cat bond market: Swiss Re

For the third year in a row, new issuance outpaced maturities, pushing the size of the cat bond market to new heights of $22 billion.

This is according to the latest market update by Swiss Re which reported that the pace of new issuance intensified from March through May.

“Driven by strong investor demand, and in the absence of a large event, spreads were forced to new lows. Investors have not cheered along with sponsors on the new issue spread levels but ultimately accepted the deals, leading us to believe that current spread levels are sustainable. Given the significant pushback from investors, it does appear that perhaps the market has achieved a floor, though at the same time, we do not anticipate new issue spread widening as we are still seeing deal upsizing along with healthy oversubscription levels on new issuance,” said the report.

It reported that favourable market conditions should continue to spur interest from ILS sponsors with elevated demand and the sophistication level of the investor base enabling sponsors to issue cat bonds which provide them with holistic covers that more closely compare to traditional reinsurance coverage.

“Ultimate net loss triggers and aggregate covers are becoming more and more prevalent. This, as well as favourable pricing, has led to issuance from new sponsors including regional insurers,” said the report.

Trading volume for the Swiss Re Capital Markets (SRCM) desk exceeded $490mm through the end of June, marking the largest volume for the first half of a year since 2010.

The report noted that “the increased volume is a reflection of more issuance and of a change in portfolio management dynamics with more investors willing to trade around their positions rather than just adopt a buy and hold strategy. Some investors view trading as a way to boost returns and to shape their portfolios more dynamically in response to changes in market, seasonal risk, etc.”