2014 Catastrophe Bond Activity Ends on Record Note with More Innovative Bonds Expected in 2015, According to GC Securities* Report
GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member FINRA/NFA/SIPC, today released a briefing and analysis of the record catastrophe bond activity for 2014 and expectations for the market in 2015.
The briefing, Catastrophe Bond Update, Fourth Quarter 2014: Issuance Reaches Industry Full Year Record, reports that the fourth quarter of 2014 saw a flurry of activity that resulted in full year 144A P&C catastrophe bond issuance exceeding USD8 billion - an industry record. This followed one of the slowest third quarters to date for 144A P&C catastrophe bond issuance. Total risk capital outstanding as of December 31, 2014 equaled USD22.868 billion, the highest level of outstanding risk capital the market has ever supported.
GC Securities expects repeat and new sponsors to continue to utilize the insurance-linked securities (ILS) market in 2015. “Sponsors took advantage of strong investor demand as more than 70 percent of deals coming to market in 2014 settled at greater notional value than initially expected,” said Cory Anger, Global Head of ILS Structuring, GC Securities. In the fourth quarter alone, of the six new deals that came to market, four closed at higher notional limits.
Eighty-one percent of the P&C risk capital (based only on 144A catastrophe bond transactions) was structured with an indemnity trigger on either a per-occurrence, annual aggregate or multi-year aggregate basis. The use of indemnity triggers increased steadily from a low of 30 percent in 2011 to 55 percent in 2013.
In addition to 144A P&C transactions, the fourth quarter of 2014 was an active one for the private catastrophe bond market. As of December 31, 2014 approximately USD561.5 million of limit was transferred to the capital markets via 17 transactions. These figures represent a 210 percent increase in the notional amount of limit placed year-over-year, and a 183 percent increase in the number of transactions year-over-year.
A notable transaction in the fourth quarter of 2014 was the CHF70 million Regulation S placement of notes through Kaith Re Ltd. to benefit Gebäudeversicherung Bern (GVB) and provide protection against Swiss natural peril. This particular transaction was unique because it was the first-ever Swiss franc-denominated catastrophe bond.
In 2015, it is likely that the market will continue to see more innovative catastrophe bonds issued, with structural features on a larger scale that may include:
- Non-modeled natural perils such as meteorite impact, wildfire and volcanic eruption
- Man-made perils (including terrorism)
- Longer duration bonds (greater than five years)
- Increased usage of ILS by corporate sponsors.
*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.