PCS Sees Busy Cat Bond Market in 2012 Thus Far

With two quarters completed in 2012, the catastrophe bond market remains robust. Insurers and reinsurers issued approximately $3.6 billion in catastrophe bonds during the first half of 2012, up from $2.2 billion in the first half of 2011, according to Property Claim Services (PCS), in a report citing data from Artemis.bm Deal Directory.

Sixteen catastrophe bond deals closed in the first half of 2012, up 31 percent from the 11 completed in the same period in 2011.

In May, a report from broker Willis Group Holdings found record issuance in the catastrophe bond market in the first quarter of 2012.

The 2012 issuance year has been a busy one for PCS, which is a unit of Verisk Analytics. The PCS Catastrophe Bond Report: Is It 2012 or 2007?, says that during the first half of 2012, issuers used the PCS index to trigger nine catastrophe bonds, an increase of 22 percent over the same period in 2011. By transaction value, use of the PCS index grew 33 percent, from $1.2 billion to $1.6 billion.

PCS said that in some ways, 2012 is reminiscent of 2007, with a large indemnity-triggered catastrophe bond coming to market in an already robust year for issuance. This year, it was Everglades Reinsurance Ltd., with $750 million in limits.

“Is 2012 like 2007? That’s the big question everyone seems to be asking,” said Gary Kerney, assistant vice president of PCS. “The big indemnity-triggered transactions from then and now – Merna Re and Everglades Re – certainly make you think about it. And overall issuance volume is expected to be in the neighborhood of the 2007 results.

“At the beginning of hurricane season, it’s just too soon to tell,” he said. “One catastrophe could change everything.”

PCS defines a catastrophe as an event that causes $25 million or more of insured property damage and affects a significant number of policyholders and insurance companies. Once PCS issues a catastrophe declaration, it then compiles the dollar loss related to insured property. The PCS estimates are often used as triggers, that is the total loss reported by PCS exceeds the dollar value pegged in an insurance-linked securities (ILS) transaction. The predetermined loss levels vary by issuer and the monetary need that the bond or other transaction fulfills.

Talk of a shift in catastrophe bond tenor may have started several years ago, but it is now firmly taking root, with more transactions carrying four-year durations, the report says.

PCS said it continues to focus on cross-border growth, the trigger used for the first catastrophe bond issued that covers earthquake risk in Canada (as well as the United States), with another trigger used for hurricane risk in the United States and the Caribbean.

The full report, PCS Catastrophe Bond Report: Is It 2012 or 2007?, is available for download at on www.ISO.com.