Q1 cat bond issuance reaches new high as mix of issuers changes

Levels of catastrophe bonds issuance broke new records in the first quarter of 2017, according to the PCS Q1 2017 Catastrophe Bond Report, but its authors stressed that it is difficult to draw firm conclusions from this because of the changes in the mixture of bonds issued.

The report noted that, apart from the headline number of $2.3 billion of bonds issued compared with $2 billion a year earlier, the quarter looked nothing like the first quarter of 2016. Several major players didn’t return to the market, and others moved their issuance activity up to the first quarter from the second.

It also noted that half the transactions were small (under $200 million), and it took two large transactions of around $500 million to lift aggregate limit to year’s record-setting issuance of $2.3 billion.

“So, issuance was up a bit roughly the same year over year. But a lot of the players were different—even though they were different only for the first quarter,” the report said. “The quarter brought a certain strangeness, therefore, that the headline numbers don’t reflect. If you’re looking for patterns or trends, they’re hard to come by.”

Sponsors completed eight transactions in the first quarter—down a little from nine in the first quarter of 2016. But the average transaction size climbed significantly (31 percent) to $292 million due to the disproportionate effects of three bonds: Galilei Re, Aozora Re, and Sanders Re.

The report also noted a fundamental change in the types of issuers with most transactions smaller and from primary market sponsors.

“This stands in stark contrast to the past several years of first quarters, which featured more large retrocessional transactions and even larger primary market issuance activity. Only one first-quarter sponsor was a new entrant. Historically, the second and fourth quarters are the busiest of the year, so it can be difficult to use the first quarter as a reference point for the rest of the year,” the report said.

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