Catastrophe Bond Issuance Tops New Record of $10.5B in 2017: Verisk Report

January 5, 2018

Catastrophe bond issuance surpassed $10.5 billion in 2017 – a new record, according to the latest report from the Property Claims Services Unit of Verisk Insurance Solutions.

Results from 2017 are significantly higher than the last record – 2014’s $7.8 billion in catastrophe bond issuance. In 2015 and 2016, catastrophe bond issuance decline to $6 billion and more than $4.5 billion, respectively, versus the previous heights hit in 2014.

For 2017, there were 36 cat bond transactions, a jump over 20 from 2016. What’s more, the average transaction hit $290 million, a 3.6 percent jump for this statistic over the prior year.

PCI said that Hurricanes Harvey, Irma and Maria along with two wildfires in the second half of 2017 helped drive the increase. Before this, experts focused on new lines of business, new regions and talks of innovation to drive long-term growth through a “protracted soft market.” The catastrophe event-onslaught, however, will likely reduce innovation for some time, PCS said,

“Innovative ideas [for new kinds of catastrophe bonds] took a back seat to sorting out a series of significant catastrophe losses – a process that may go on for a while,” the PCS report stated.

Still, PCS urged insurers to not forget about catastrophe bond innovation, because the market will soften again eventually.

“Sooner or later, the market will soften again, and if we don’t invest for that eventuality, the market will have no choice but to endure the slipping rates and looser terms that tend to prove problematic in the long run,” PCS said.

Other results from the PCS report:

  • 32 out of 36 catastrophe bonds completed in 2017 had exposure to North America. Out of that number, 8 involved Canada (a record), in transactions with an aggregate limit of $3.2 billion.
  • Two cat bond lite transactions were recorded for Q4. One was a $14.5 million parametric deal via the Market Re platform, and a $50 million Seaside Re transaction was the other. In all, there were $560 million in cat bond lite transactions for the fourth quarter, involving 15 transactions.

Source: PCS/Verisk

This article first appeared in Insurance Journal’s sister publication, Carrier Management.

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