February 26th, 2015

Cat Bonds: 2015 Trends

Posted at 1:00 AM ET

Pricing levels for first quarter 2015 deals will be influenced by the number of bonds maturing during the period. January alone will see USD2.3 billion of principal returned to investors as ten transactions have or are set to mature (absent any triggering event). Additionally, another USD1.24 billion of capital will be returned to investors in February and March, taking the total notional value of first quarter 2015 maturities to USD3.54 billion. Such maturities in the insurance-linked securities (ILS) space in the first half of 2015, which has the highest percentage of outstanding cat bonds as of the end of the preceding year since 2011, is expected to provide further pressure to lower ILS pricing.

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In 2015, it is likely that the market will continue to see more innovative and bespoke structured catastrophe bonds issued. The structural features that investors may continue to accept on a larger scale 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.

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