Canadian Underwriter

Sponsors completed two cat bonds with Canadian coverage in Q1 2016: PCS

April 6, 2016   by Canadian Underwriter

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Sponsors completed two catastrophe bonds with coverage for Canada in the first quarter of 2016 – the same two sponsors that did so in the first quarter of 2015, according to Property Claims Services’ (PCS) Q1 2016 cat bond report.

Déjà vu: PCS Q1 2016 Catastrophe Bond Report, released on Wednesday, noted that capital raised by cat bonds that included cover for Canada, though, surged from $350 million last year to $600 million this year. The latest Galileo Re stayed at $300 million, but the new Atlas IX Capital DAC transaction was twice as large as the one completed in the first quarter of 2015, PCS, a division of Verisk Analytics, said in the report. [click image below to enlarge]

The insurance-linked securities market has yet to see a Canada-only cat bond, although industry loss warranties with exposure only to Canada have been completed. Based on recent market discussions, it appears that the cat bond lite structure could be an effective alternative for Canadian insurers and reinsurers in accessing the capital markets, given the size of such transactions and lower frictional costs, PCS suggested. The report added that PCS launched its core service in Canada in late 2009, marking its first operation to estimate cat losses outside the United States, Puerto Rico and the U.S. Virgin Islands.

According to data from the Deal Directory, insurers and reinsurers issued approximately US$2 billion in cat bonds in Q1 2016, up 35% from last year’s record result. Sponsors completed nine transactions – up from seven in Q1 2015 – and average transaction size climbed slightly (5%). All nine sponsors had prior experience with the market, and seven of the nine completed so far this year had exposure to North America, the report said.

Limit raised with PCS-triggered transactions reached US$950 million, up from US$800 million last year. The two index-triggered transactions accounted for US$600 million, with the two indemnity-triggered transactions using PCS for independent cat designation accounting for the remaining US$350 million.

For PCS to designate an event a catastrophe, it must generate an industry insured loss of at least $25 million and affect a significant number of insurers and insureds. The PCS team generally reviews 40 to 50 events in North America every year that have the potential to become catastrophes. Last year, the report said, the team designated 37 cat events in the U.S. and three in Canada.