$7.8 billion in cat bond issuance in 2014, PCS reports

Last year was a year of “firsts” for the catastrophe bond market, with a record-setting $7.8 billion in issuance, Property Claim Services reported Wednesday.

That amount was up 8% last year over 2013,  according to the firm’s annual cat bond report. In the last quarter alone, sponsors raised more than $2 billion, up from $1.8 billion in 2013.

“The increase in capital raised last year came despite a decline in catastrophe bonds completed. Issuance fell 25% — from 32 in 2013 to 24 in 2014,” PCS reported.

“But with five catastrophe bonds of $450 million or larger, average transaction size surged 44% year over year to $324 million. Those large catastrophe bonds offset the ten smaller catastrophe bonds (limits of $200 million or less).”

Last year was also the first to have five bond of $450 million or more, along with having the first European indemnity-triggered catastrophe bond. It was also the first year with four cat bonds covering Japan, with more than $1 billion in protection.

Also in 2014, the biggest catastrophe bond in market history was issued ($1.5 billion), along with the biggest index-triggered cat bond in market history ($750 million), PCS reported.

Overall, in 2014 there were three cat bonds including coverage for Canada including Tradewynd Re, the second Kilimanjaro Re and Riverfront Re, PCS noted.

“One could be inclined to claim that continued large year-over-year increases suggest a market still in its early stages, but it really looks more like rapid adoption of a proven concept,” PCS says in its report.

“Insurers and reinsurers have generally accepted the viability of catastrophe bonds as a strategic risk transfer and capital management tool, even if they haven’t entered the market yet. Now, more and more potential sponsors are taking a look at the sector.”