Sidecar activity will dominate 2015

Growth in the collateralised market will increase in 2015, with a heavy focus on sidecars, but catastrophe bond growth is likely to be flat.

That is the opinion of Paul Schultz, chief executive officer of Aon Benfield Securities.

“We’re starting to see the pipeline build really well and as we would expect. We forecast that cat bond issuance in 2015 will be similar to that in 2014—so between $7 and $8 billion,” he said.

“However, while the overall collateralised industry will continue to grow, growth in the cat bond product will be relatively flat, but we would expect to see more sidecar activity.”

Schultz said that the type and size of deals emerging in 2015 are also going to change.

“We’re going to continue to see 144A deals come to market and the average size per transaction is going to trend up, which will be driven by investor appetite,” he said.

“If the market can provide larger capacity at an efficient price, then sponsors will take advantage of this. I also think we’ll see some large deals in excess of $500 million and a higher frequency of the smaller private transactions; more so than in 2014.”

Indemnity transactions are also tipped to continue, but will not fully replace other types of triggers.

“We’ll continue to see a push towards indemnity deals, with some clients opting for this structure, even if they’ve issued bonds on an index basis before. However, there are certain types of transactions that will continue to be on an index or parametric basis as some clients don’t wish to disclose certain information, or the data isn’t sufficient,” said Schultz.

To read the full feature on the Intelligent Insurer website, click here.