Q3 cat bond issuances include earthquake coverage with ‘cat-in-a-box’ trigger

Total catastrophe bond issuance was US$21.709 billion as of Sept. 30, and while one issuance in the third quarter provides earthquake coverage in British Columbia, more than 70% of outstanding bonds are exposed to U.S. tropical cyclones and earthquakes, Guy Carpenter & Company LLC suggested in a recent report.

During the three months ending Sept. 30, three primary issuance property and casualty catastrophe bonds were successfully executed, Guy Carpenter stated in Catastrophe Bond Update: Third Quarter 2015, a report announced Sunday. Guy Carpenter, the reinsurance intermediary subsidiary of Marsh & McLennan Companies, was referring to cat bonds issued in accordance with Rule 144A, a section of the United States Securities Act on the resale of restricted securities to qualified institutional buyers. [click image below to enlarge]

Total 144A P&C cat bond issuance was $650 million in Q3, Guy Carpenter reported. This “brings the total 2015 144A P&C catastrophe bond issuance through September 30, 2015,” to $4.492 billion, Guy Carpenter added. All figures are in U.S. dollars.

“This was the fourth highest third quarter 144A catastrophe bond issuance historically,” Guy Carpenter said of 2015.

As of Sept., “total outstanding 144A P&C catastrophe bonds” were $21.709 billion, down 4.65% as of the end of 2014.

One deal in Q3 was Acorn Re Ltd.’s Series 2015-1, a $300 million issuance on behalf of Hannover Re and its reinsureds. Acorn Re’s 2015-1 uses a “refined cat-in-a-box trigger developed by Guy Carpenter’s CAT Risk Studio (CRS),” according to the report.

It “provides three years of earthquake protection across California, Oregon, Washington, Idaho, Utah, Nevada and Arizona in the United States; the province of British Columbia in Canada and the states of Baja California, Baja California Sur and Sonora in Mexico.”

The other two deals in Q3 were a $250 million issuance by Ursa Re on behalf of the California Earthquake Authority and a $100 million issuance by Bosphorus Ltd. on behalf of the Turkish Catastrophe Insurance Pool.

“As we approach the close of the fourth quarter, the fact that 71 percent of the outstanding 144A P&C catastrophe bonds in the cat bond market are exposed to the perils of U.S. tropical cyclone and U.S. earthquake demonstrates that the largest of the peak perils continues to drive the ILS marketplace,” Guy Carpenter said. “However, the focus by cedents and ILS investors to further expand the application of ILS to risks beyond natural perils grows stronger each day. While we expect the U.S. peak perils to continue to be a driver of the ILS marketplace, 2016 will see new perils, new geographies, new types of protection structures and new sponsors.”

Guy Carpenter also discussed the market for private catastrophe bonds, which “differ from 144A catastrophe bonds in that there is no formal offering prospectus, no expert risk analysis from a third party modeling firm or rating on the notes.”

There were “no publicized new issuances” in that market in Q3, but it has grown at a rate of about 50% from 2014 to Sept. 30, 2015, Guy Carpenter suggested.

That growth “is a function of sponsors with lower limit needs or those sponsors testing the alternative capital market for the first time looking to access capital markets-based capacity to gain the same benefits as larger sponsors using 144A catastrophe bonds,” Guy Carpenter added.