Insurance-linked securities take off in first half of 2012

The first half of 2012 was the most active first half for Insurance-Linked Securities (ILS) issuance since 2007, Swiss Re notes in its July edition of Insurance-linked securities market update.

“With approximately US$3.6 billion across 16 transactions and 28 tranches, the first half of 2012 was only US$237 million short of 2007’s first-half record,” Swiss Re reports in its update. “The issuance in the first half of 2012 was also approximately double that of the first half of 2011 (US$1.8 billion).”

The PCS Second Quarter 2012 Catastrophe Bond Report: Is It 2012 or 2007? notes that only $2.2 billion worth of catastrophe bonds were issued in the first half of 2011. PCS further notes that 16 catastrophe bond deals closed in the first half of 2012, up from the 11 completed during the same period in 2011.

“Any way the numbers are spun, the first half of 2012 was a thoroughly impressive one for the ILS market,” Swiss Re states in its market update.

Swiss Re says new and repeat sponsors have been attracted by the diversifying capacity source, as well as by price levels that are increasingly competitive with traditional reinsurance.

“Primary insurance companies have increasingly used indemnity triggers in their catastrophe bonds and have seen that investors are comfortable evaluating these deals on their merits,” Swiss Re notes in the update. “All of these factors, combined with a hardening market for traditional reinsurance, have led many companies to the ILS market.”

Among the cat bonds issued, U.S. hurricane risk was the most common peril, covered in 23 out of 28 tranches.

Blue Danube’s two tranches issued on Apr. 3, 2012, each worth $120 million, cover Canadian earthquake in addition to U.S. windstorm, U.S. earthquake, Mexican hurricane and Caribbean hurricane. GC Securities, a division of MMC Securities Corp., placed the notes, which provide three-year per occurrence protection to Allianz Argos 14 GmbH, a wholly owned subsidiary of Allianz SE.

Both Swiss Re and PCS note that the first half of 2012 has seen a large increase in the amount of bonds issued using indemnity triggers.

The use of PCS triggers has increased 33% year over year, accounting for $1.6 billion in newly issued limits out of an estimated $3.6 billion in first-half 2012 transactions.

The number of catastrophe bonds with PCS triggers grew from seven for the first half of 2011 to nine for the first half of 2012.

“In some ways, 2012 is reminiscent of 2007, with a large indemnity-triggered catastrophe bond coming to market in an already robust year for issuance,” PCS notes in its report. “This year, it was Everglades Reinsurance Ltd., with $750 million in limits.”