Healthy Cat bond activity supported by record issuance of private bonds: GC Securities

Catastrophe bond activity for 2015 Q2 was lower than for the second quarters of both 2013 and 2014, but still represents among the best second quarters on record, notes a new Cat bond briefing and analysis from GC Securities.

Cat bond activity for the second quarter of 2015 “shows healthy activity across the market and primary issuance levels recorded as the fourth highest second quarter on record,” notes in a statement issued Thursday by Guy Carpenter & Company, LLC.

Despite that positive, aggregate volume was lower than for the previous two second quarters on record, states Catastrophe Bond Update: Second Quarter 2015. Specifically, aggregate volume in 2015 Q2 was US$2.453 billion, down from US$4.492 billion and US$3.303 billion in the second quarters of 2014 and 2013, respectively, GC Securities reports in the statement.

Still, “the investor base continued to embrace new sponsors and perils despite the emergence of a pricing floor, as demonstrated by the second quarter new issuances,” the statement adds.

“The investor base also supported significant growth in private catastrophe bonds, as issuances rose to their highest levels ever. Seven sponsors re-entered the market in the second quarter to obtain either additional or replacement coverage for their respective programs,” the briefing states.

In all, nine deals came to market in 2015 Q2, “representing US$ 556.32 million of risk capital and outpacing growth in the 144A catastrophe bond market,” the statement notes. [click image below to enlarge]

Cory Anger, global head of ILS structuring for GC Securities, says in the statement that the company continues to see high demand among insurance-linked securities (ILS) investors for non-traditional diversifying exposures.

ILS investors’ “high demand for non-traditional diversifying and non-traditional exposures continued to warrant new sponsors’ evaluation of alternative capital for protection in regions not yet ceded to the alternative capital and/or catastrophe bond market,” the briefing adds.

It points out that the pricing floor seen in 2015 Q2 – particularly for lower expected loss catastrophe bond structures – is a trend that GC Securities expects will continue for the near future. “This development was further evidenced by the secondary pricing of outstanding 144A P&C catastrophe bonds, which has continued to trend upward throughout the year,” the statement notes.

“The reach for yield, even within the catastrophe bond asset class, has resulted in some investors reducing allocations to lower than expected loss deals,” notes the statement. “This should encourage sponsors to cede less remote risks to the capital markets where a pricing floor is not yet definitive.”