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Pure property catastrophe bonds push market to record high in 2020: Report

4th January 2021 - Author: Luke Gallin

More than $11 billion of pure property catastrophe bond issuance, alongside another active year for mortgage insurance-linked securities (ILS) deals, helped the catastrophe bond and related ILS marketplace break records in 2020, according to Artemis.

q4-2020-catastrophe-bond-ils-report-coverThe recently published Q4 2020 catastrophe bond and ILS market report from our sister site, Artemis, examines $6 billion of new risk capital brought to market in the final quarter of an extremely active year.

Combined with a record-breaking Q1 and an above-average Q2 and Q3, a massive $6 billion of issuance in Q4 took annual issuance levels to a record $16.4 billion, as shown by the Artemis Deal Directory.

In the fourth-quarter, a substantial 24 transactions comprised of 53 tranches of notes came to market, taking 2020 issuance, in terms of the number of transactions, to a record 80.

Underlining the attractiveness of the sector in 2020, ten new market entrants sponsored deals during the period.

Furthermore, it’s worth noting that the arrival of new players in the catastrophe bond space and the record level of issuance in 2020 all took place against the backdrop of a global pandemic.

In spite of a slight slowdown at the height of the coronavirus outbreak and subsequent lockdowns around the world, the cat bond space once again showed its resilience during times of broader financial market volatility, just as it did during the global financial crisis.

As the report shows, mortgage ILS issuance was strong in 2020, reaching approximately $4.3 billion. Combined with deals issued in 2015, 2016, 2017 and 2018, total mortgage ILS issuance now stands at over $13 billion.

But while mortgage issuance was again robust, the real story of the quarter and the full-year is the continued resurgence of deals focused on property catastrophe risks. According to Artemis’ data, investors welcomed more than $11 billion of pure property cat bonds in 2020, which is yet another record for the market.

Steve Evans, Owner and Editor of Artemis.bm, commented: “2020 was a landmark year for the catastrophe bond market and for insurance-linked securities (ILS) funds and their investors.

“I’ve never seen such high-levels of issuance activity in the almost 25 years’ I’ve been tracking the development of ILS. This is testament to the resilience of the ILS market and its participants, as well as the utility of catastrophe bonds as a vehicle for transferring risk to the capital markets.

ILS fund managers have demonstrated their ability to trade through challenging times and offer continuity to those seeking risk capital, even as their businesses transitioned to remote working.

“ILS investors have equally shown their ability to provide continuity of capital and demonstrated their desire for the relatively uncorrelated returns available from insurance related risks, which is very important for the future of this marketplace.”

As the sector heads into 2021, many of the forces which contributed to the record-breaking year for the catastrophe bond and ILS market remain, suggesting another active year for the marketplace.

“All the signs point to another busy year for catastrophe bonds and ILS as risk transfer structures, as sponsors increasingly look to the global capital markets as an efficient source of insurance protection,” said Evans.

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