Two catastrophe bonds issued in Q1 2015 cover Canada and U.S.

Seven catastrophe bonds covering US$1.5 billion in property risk were issued in the first three months of 2015, and two of those provide coverage in Canada, Verisk Analytics Inc.’s Property Claims Services (PCS) unit said in a report released Wednesday. 

“Six of the seven catastrophe bonds completed this year had exposure to North America,” PCS stated in Heavy and Lite: PCS First-Quarter 2015 Catastrophe Bond Report.

That report quoted from Artemis.bm, a news service covering insurance-linked securities.

Insurers and reinsurers issued about $1.5 billion in cat bonds in Q1 2015, up 23% from same period in 2014, PCS reported. Of that issuance, $1.2 billion was in six bonds for North America. All figures are in United States dollars.

“Atlas IX Capital Limited included the United States and Canada, and Galileo Re Ltd. added Europe to its North American exposure,” PCS stated. A seventh bond covers risk in Japan.

“Sponsors completed two catastrophe bonds with coverage for Canada in the first quarter of 2015, up from one in the same quarter last year,” PCS reported. “In 2014, sponsors completed three catastrophe bonds with exposure to Canada, five in 2013, and two in 2012. Both 2015 Canada-exposed catastrophe bonds used the PCS Catastrophe Loss Index, while the first-quarter 2014 transaction used PCS for independent catastrophe designation in an indemnity trigger.”

The use of data from PCS in cat bonds issued was $800 million in Q1 2015, up 72% from $465 million in Q1 2014, PCS noted.

“The number of catastrophe bonds using PCS data climbed from three to four,” PCS said. “Three transactions using PCS had index triggers, representing $550 million in fresh capital. Two of the index-triggered transactions covered the United States and Canada. The third catastrophe bond used PCS for independent catastrophe designation in an indemnity trigger.” [click image below to enlarge]

PCS added there is a growing interest in the “cat bond lite structure,” which “aims to provide a route to securitization that doesn’t involve the onerous issuance requirements of traditional catastrophe bonds.”

The cat bond lite structure provides the “structural discipline and transparency that have characterized catastrophe bonds since the market’s inception,” PCS added. “As a result, sponsors can use increased flexibility to complete smaller and more targeted transactions quickly while managing their cost of capital. Additionally, the cat bond lite structure enables more participants to enter the ILS sector. Funds with a mandate to participate only in securitized transactions, for example, can use cat bond lite instead of collateralized reinsurance or ILWs to issue and consume risk.”

Quoting from the Artemis deal directory, PCS said so far in 2015 there have been seven cat bond lite deals with limits of nearly $200 million.

“In the first quarter of 2014, four cat bond lite transactions came to market, totaling $125 million,” PCS said. “Interest is growing in the cat bond lite structure across the market, with the greatest opportunities from traditional insurers and reinsurers interested in securitizing (industry loss warranties) and other risk-transfer instruments.”