2 July 2015 Alternative Risk Transfer

Q2 cat bond issuance drops nearly 50%: PCS

Catastrophe bond issuance in the second quarter of 2015 dropped nearly 50 percent compared with 2014.

This is according to a report by Property Claim Services (PCS), a division of Verisk Analytics, which added that despite this, the first half of 2015 is still the second most active first half in the history of the market, ahead of 2013’s $3.9 billion in first-half original issuance.

“The catastrophe bond market appears to be shifting. Despite a recent run of record-setting quarters and years, issuance activity continues its trend toward larger transactions by fewer sponsors,” said PCS.

The report added: “But the market doesn’t need a constant string of record-setting quarters to be healthy. In fact, the second-quarter respite from new heights may be a natural stage in the maturity cycle as potential and existing sponsors evaluate the alternatives available to them in optimising capital management.”

PCS explained that the slowdown in cat bond issuance can be attributed to rate pressure across the reinsurance industry and the adoption of more cost-effective and flexible structures.

One of these structures, cat bond lite, continued to grow rapidly in the second quarter of 2015, with six  publicly revealed transactions in the second quarter ($200 million). This brought the year’s total to $400 million across 12 lites.

“In all of 2014, ten publicly revealed cat bond lite transactions resulted in $242 million in risk transfer. Clearly, this market continues to gain momentum rapidly,” said the report.

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