Property and casualty cat bond issuance levels plunged in Q4 2015, according to a GC Securities report, although a captive placement accounted for the year’s biggest issuance.
Last year began with record issuance levels in Q1 but ended with a dramatically different Q4, making the second biggest dip in the market since 2005.
The low issuance levels of completed 144A property and casualty cat bonds benefitted five sponsors and totalled $1.42 billion.
Issuances totalled $5.91 billion last year, with outstanding risk capital reaching $22.64 billion, as of 31 December.
Cory Anger, global head of insurance-linked securities (ILS) structuring at GC Securities, commented: “Overall, 2015 proved to be a strong issuance year for the cat bond market.”
“The relatively low levels of activity we saw at year-end may be due to the fact that sponsors, who might ordinarily issue in Q4, had the flexibility to delay issuance to Q1 2016 in an effort to either obtain better execution, or to avoid transaction crowding.”
“We view this shift in sponsors’ willingness to prioritise execution over specific renewal dates as a further sign of the maturity of the ILS space.”
The report noted that one new sponsor and four repeat sponsors accessed the 144A catastrophe bond market during Q4.
The new sponsor, Amtrak’s captive, Passenger Railroad Insurance, marked the biggest transaction, with a placement of $275 million of principal at-risk variable rate notes issued from the newly formed PennUnion.
In addition, pricing dynamics in Q4 were also mixed, with bonds trading in different directions based on the risk level, peril exposure and relative market size.
Anger added: “In today’s compressed rate environment, where the margin for error is low, investors will likely look towards higher quality risks. Overall, we view these patterns as long-term net positives for the stability and reliability of the 144A and private cat bond marketplaces.”
“Looking forward to 2016, absent of a major market disruption, we expect that risk spreads in the 144A property and casualty and private cat bond market will remain flat to slightly down. Especially as new sponsors continue to incorporate alternative capital into their strategies, we expect issuance to be similar to the last several years with further growth in the private cat bond market.”
