Record cat bond issuance in Q2 2014: Willis


A record volume of non-life catastrophe bonds was issued during the second quarter of 2014, driven by two of the largest ever catastrophe bond transactions.

This is according to a report by Willis Capital Markets & Advisory (WCMA), part of Willis Group.

In Q2, $4.5 billion of non-life catastrophe bond capacity was issued in 17 deals, compared with $3.3 billion issued in 17 deals in the same quarter of last year. This beats the previous quarterly record of $3.5 billion of non-life catastrophe bond capacity issued in Q2 2007.

The report noted that the record issuance was driven by two of the largest ever catastrophe bond transactions: Everglades Re 2014, a $1.5 billion bond for Florida Citizens; and two Sanders Re 2014 takedowns totalling $950 million in new capacity for Allstate.

Tony Ursano, chief executive officer (CEO) of WCMA, said: “In Q2, the ILS market continued to evolve, progressing its gradual transition from a niche and emerging market into a more mainstream alternative asset class.

“Not only did we see the largest ever single transaction cat bond in Q2, but we also witnessed several other notable achievements including the first indemnity-trigger cat bond for a primary company’s Euro Wind exposure, the first yen-dominated deal, as well as the fastest ever takedown.”

The report also found that individual insureds, or large corporates, have not yet joined the market to the extent expected following the 2013 MetroCat deal and the declining spreads of the last year.

“Risk managers often prefer an indemnity trigger, which some brokers view as tricky to achieve for an individual insured. Additionally, many risk managers and brokers lack access to the modelling information necessary to provide price indications. Nonetheless, given the continued interest, we still expect some of these deals to eventually reach the market,” Bill Dubinsky, Head of ILS at WCMA said.

Commenting on the outlook for the remainder of the year, Ursano said: “While we expect Q3 to be relatively quiet, Q4 should be busy even if spreads remain flat or have a slight uptick against the back drop of a loss free third quarter.

“Given the spread environment and the busy second quarter, we feel optimistic that 2014 will end up a record setting year for the cat bond market. By year end, we expect eight to nine billion dollars in total non-life cat bond issuance, whilst the broader ILS market, including private deals and deals with coverage extending beyond property cat, should exceed this considerably.”

Willis Capital Markets & Advisory, North America, Cat Bonds, Tony Ursano

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