After one of the slowest third quarters to date for 144A property and casualty (P&C) catastrophe bond issuance, the fourth quarter saw a flurry of activity that resulted in full year 144A P&C cat bond issuance exceeding USD8 billion - an industry record. 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.
Persistent year-on-year growth in issuance and risk capital outstanding indicates that the market is showing signs of maturity and stabilization. Seven new sponsors entered the 144A P&C cat bond market in 2014, issuing ten new tranches of notes. Of the seven, five were insurers, one was a reinsurer and the other a residual markets insurer.
While no first time sponsors issued bonds in the fourth quarter, six repeat issuers placed USD2.075 billion with capital markets investors in 144A cat bond format. The re-entry of sponsors across a range of underlying businesses further indicates that sponsors continued to recognize the value of insurance-linked securities (ILS) as an appropriate risk transfer mechanism. We expect repeat and new sponsors to continue to utilize the ILS market in 2015, as they seek to complement their traditional coverage with proven, efficient and bespoke features that can be sourced via cat bond protection.
The attraction to non-correlative property catastrophe risk resulted in third party capital continuing to be deployed into the ILS sector. 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. In the fourth quarter alone, of the six new deals that came to market, four closed at higher notional limits (44 percent higher on average).
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