Momentum apparent in the diversification of ILS

US deals continue to predominate in the cat bond space, but smaller cat bond lite deals and greater geographic diversity were apparent among those bonds issued during the first quarter of 2014.

That is the news from PCS in its report Fast start, which found that first quarter issuance of $1.2 billion was the second-busiest experienced by the market, topped only by the $1.3 billion issued in the first quarter of 2012.

Six transactions were completed during the first quarter, five of which included North American risk. However, one transaction – Kizuna Re II - covered only Japanese risk and one of the US transactions – Queen Street IX Re - included Australian risk.

PCS says that such deals will help to expand the diversity of transactions, with Australian and Japanese already evident in transactions in 2013.

The market has also been helped by new entrants into the space, with Riverfront Re and Gator Re, both being placed by new issuers, Great American Insurance Group and American Strategic Insurance Group respectively.

PCS says that such transactions will help to expand the base for issuance activity.

Smaller deals are also helping to increase the scope of ILS transactions. According to PCS a number of cat bond lite deals were transacted during the first quarter, as issuers take advantage of reduced entry hurdles.

PCS found that such deals are not cannibalising the cat bond market, but are instead attracting issuers looking to place smaller transactions. The ongoing success of this section of the market is likely to provide further impetus to the market.