22 April 2015ILS

Munich Re predicts $3bn cat bond issuance in Q2

Reinsurer Munich Re has forecast catastrophe bond issuance to exceed $3 billion in the second quarter of 2014, driven by a high volume of renewals.

In its latest insurance-linked securities (ILS) market update, Munich Re explained that it expects major issuance during the second quarter driven by the high-volume of renewals.

“Maturities of $1.5 billion during the second quarter point to a strong deal pipeline during the coming months. Furthermore, Munich Re expects some sponsors with non-renewed first quarter maturities to catch up on their cat bond issuance during the second quarter,” said the report.

According to the update, in the first quarter of 2015, $3.5 billion of cat bonds matured, mostly from bonds issued as part of the strong activity pick-up in the ILS market in late 2011 and early 2012.

A total of 15 bonds expired in the quarter, although only seven have been replaced through new issuance activity so far, with four of the transactions taking place in the first quarter and three in the fourth quarter of 2014.

The report said: “First quarter issuance activity reached $1.7 billion, while total market size declined to $21.4 billion (private placements and mortality transactions are not considered). A large portion of the re-issuance backlog is likely to come to the market in the second quarter, which traditionally has the strongest placement activity.

“Overall Q1 saw a reversal of cat bond spread tightening, with seasonal adjusted rates increasing slightly. We do not expect this to indicate a move away from the general market environment in the cat bond space, but rather a cyclical development ahead of the major issuance season in Q2.”

Munich Re said that the inclusion of new and non-modelled perils has become a new trend in the market. East Lane VI (Series 2015-1) includes volcanic eruption, meteorite impact and wildfire losses and Kizuna Re covers losses arising from tsunamis, floods or volcanic eruptions related to earthquakes.