17 October 2013ILS

Cat bonds: US peak peril focus persists

With cat bond issuance set to surpass 2012’s record of $6.4 billion and Fitch estimating that it could reach $7.2 billion by year’s end, 2013 is set to be a bumper year for ILS with the fourth quarter still to come.

AXA and SCOR are the latest re/insurers in a long line of issuers this year, bringing European windstorm and extreme mortality perils to market in an area traditionally dominated by US catastrophe risk.

It seems likely however that US risks will continue to predominate, with Frank Majors, co-founder of Nephila Capital arguing that convergence capital enjoys a sustainable price advantage in peak risks such as US earthquake and wind.

Bermuda players Amlin, AXIS and RenaissanceRe all brought cat bonds to market this year—Tramline Re, Northshore Re and Mona Lisa Re respectively—and there are reports that Catlin is marketing its own cat bond, Galileo Re. All four deals are focused on North American catastrophe risks, reflecting the continued preponderance of such risks in the cat bond space.

However, it is evident from talking with Luca Albertini, CEO of Leadenhall Capital that there is considerable investor appetite for diversifying perils. 2013’s Bosphorus 1 Re was a case in point, with the Turkish earthquake bond attracting considerable interest, with pricing reflecting market demand.