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First-quarter catastrophe bond & ILS issuance robust again at $4.63bn: Report

1st April 2021 - Author: Luke Gallin

Data from Artemis’ Q1 2020 catastrophe bond and insurance-linked securities (ILS) market report shows that issuance hit a huge $4.63 billion in the period, making it the second most active first quarter in the market’s history.

q1-2021-catastrophe-bond-ils-market-report-imgThe latest quarterly report on the catastrophe bond and related ILS market, ‘Upsizing and price declines underpin busy start to the year’, is available to download now.

The report examines a busy start to the year for the marketplace on the back of record-breaking issuance in 2020, as investor and sponsor appetite remained strong despite the experience of losses, trapped collateral, and the more recent impacts of the pandemic.

At $4.63 billion, Q1 issuance did decline year-on-year from the $5 billion recorded in Q1 2020, but remained above the ten-year average for the period by almost $2 billion.

All in all, 27 transactions comprised of 44 tranches of notes featured in the period, of which a significant 22 transactions with a combined value of approximately $2.8 billion covered property catastrophe risks, which accounts for 60% of total issuance.

The issuance of mortgage ILS notes, so insurers leveraging a cat bond structure to secure mortgage reinsurance protection, was also robust in Q1 and approached the $1.5 billion mark.

And, as shown by the report, the issuance of both private, or cat bond lite transactions and other, or non-catastrophe ILS deals also increased year-on-year.

While the majority of quarterly issuance came from repeat sponsors, first time sponsors included Florida-based insurer Universal (UPCIC) and also a groundbreaking cat bond for humanitarian financing response needs from the Danish Red Cross.

The report, available to download for free, breaks down issuance in the period by triggers, perils, risk levels, and pricing factors.

As the title of the report highlights, the pricing of newly issued 144A catastrophe bond transactions have been a hallmark of Q1 issuance. The report shows that during the period, all but one tranche of successfully issued 144A property catastrophe bond notes saw its pricing decline to below the mid-point of initial guidance.

At the same time, many deals upsized while marketing as sponsors were able to secure multi-year reinsurance protection at more attractive rates.

As a result of the significant level of catastrophe bond and related ILS issuance during the opening three months of the year, the outstanding market as at the end of March, 2021 reached a new high of $48.13 billion.

However, data from the Artemis Deal Directory shows that a substantial $4.8 billion of deals are scheduled to mature in the second-quarter, which means an above-average quarter is needed for the market to achieve outright growth once again.

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