Willis Sees Catastrophe Bonds Setting Record This Year After Busy Q2

July 7, 2014
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The largest ever volume of non-life catastrophe bonds was issued during the second quarter of 2014 (Q2), according to a report by Willis Capital Markets & Advisory (WCMA), part of Willis Group Holdings.

The Willis report on insurance-linked securities found that 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.

According to Willis, the record issuance was driven by two of the largest ever catastrophe bond transactions: Everglades Re 2014, a $1.5 billion bond for Florida’s Citizens Insurance Corp. and two Sanders Re 2014 takedowns totalling $950 million in new capacity for Allstate.

“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,” said Tony Ursano, CEO of WCMA.

“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.

Ursano, commenting on the outlook for the remainder of the year, said he sees a very busy Q4 after a quieter Q3.

“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, ” he said, forecasting $8 billion to $9 billion  in total non-life cat bond issuance, while the broader ILS market, including private deals and deals with coverage extending beyond property cat, exceeding this “considerably.”

Source: Willis Capital Markets & Advisory

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