GC Securities has released a briefing and analysis of the record catastrophe bond activity for 2014 and expectations for the market in 2015.
The briefing has reported that Q4 of 2014 saw a flurry of activity that resulted in full year 144A property and casualty catastrophe bond issuance exceeding $8 billion—an industry record.
This followed one of the slowest Q3s to date for 144A property and casualty catastrophe bond issuance. Total risk capital outstanding as of 31 December 2014 totalled $22.87 billion, the highest level of outstanding risk capital the market has ever supported.
GC Securities has stated that it expects repeat and new sponsors to continue to utilise 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 at GC Securities.
In Q4 alone, of the six new deals that came to market, four closed at higher notional limits.
Eighty-one percent of the property and casualty 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 property and casualty transactions, Q4 of 2014 was an active one for the private catastrophe bond market.
According to GC Securities, as of 31 December 2014, approximately $561.5 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 Q4 of 2014 was the $75.69 million Regulation S placement of notes through Kaith Re 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.
GC Securities has predicted that it is likely that the market will continue to see more innovative catastrophe bonds issued in 2015, with structural features on a larger scale that may include non-modelled natural perils such as meteorite impact, wildfire and volcanic eruption.
The firm has also claimed that man-made perils (including terrorism), longer duration bonds (greater than five years), and increased usage of ILS by corporate sponsors will all be present in 2015.
