The first-quarter of 2014 has seen the highest level of new transactions issued for any Q1 since Artemis.bm began tracking and analysing the catastrophe bond and insurance-linked securities market nearly fifteen years ago.
Steve Evans, owner and editor of Artemis.bm, commented on the record start to the ILS market’s year; “The impressive level of issuance seen in the first-quarter of 2014 is testament both to the accelerating acceptance of catastrophe bonds and ILS as risk transfer tools by insurers and reinsurers, as well as the continued and growing appetite to invest in insurance linked assets shown by institutional investors.”
Eleven new cat bond or ILS transactions were recorded in the Artemis Deal Directory during Q1 of 2014, with an average deal size of $144m. Three of these deals were smaller, often termed ‘cat bond lites’, but even excluding those Q1 issuance was still a record at $1.51 billion.
Steve Evans continued; “Q1 2014 saw a range of transactions come to market, from repeat sponsoring insurers and reinsurers showing their commitment to the ILS market as a source of protection, as well as from a number of new sponsors issuing their first ILS deals.”
Investors showed strong support for the transactions issued during Q1 and demonstrated their increasing appetite for yielding assets which help them to diversify their portfolios.
The majority of the ILS deals issued in the first-quarter of 2014 increased in size as books became oversubscribed. This also resulted in prices decreasing as the transactions were marketed to investors, generating additional savings for the sponsors.
“Investors, such as global pension funds, family offices, endowments, hedge funds and other institutional money managers, continue to show a strong appetite for insurance and reinsurance as an asset class. Capital continues to be allocated to catastrophe bonds and ILS, as these investors seek a source of attractive investment returns which has a very low-correlation with the movement of stock and bond markets," explained Evans.
“Insurance linked investments, encompassing catastrophe bonds, insurance-linked securities and other vehicles investing in fully-collateralised reinsurance contracts, are increasingly becoming an alternative asset class in their own right,“ Evans continued.
Third-party and institutional investors now contribute as much as $50 billion to the global reinsurance markets. What was once a focus solely on peak property catastrophe risks is now broadening to include other classes of business within the insurance and reinsurance market.
Evans commented; “As investors increasingly come to appreciate the returns possible from insurance and reinsurance linked investments they are looking for new opportunities to invest. That is leading to an expansion of the market into new lines of reinsurance business and further pressure on traditional reinsurers balance sheets.”
“The catastrophe bond and ILS market continues to sit at around $20 billion in size at the end of Q1 and, at Artemis.bm, we expect further growth as we move through 2014 with issuance outstripping maturing bonds. Further growth in the total amount of reinsurance capital provided by non-traditional investors is also expected and by the end of 2014 we could see this figure nearing $55 billion or even $60 billion,” forecast Evans.