Cat bond coupon rates hit all-time low

According to ILS Advisers latest report into the cat bond market, cat bond issuance and sales hit a record high during the first quarter, but coupon rates declined precipitously.

ILS Advisers found that State Farm’s fifth foray into the cat bond market with its placing of a $300 million bond to protect against US earthquake risk in the New Madrid region saw its coupon rate finally fixed at 2 percent, at the lowest end of the offering.

ILS Advisers added that “this is also the lowest yielding pure quake cat bond in the market’s history”.

The report also highlighted a $95 million transaction by Great American Insurance, which closed at the bottom end of an expected range at 4 percent with an expected loss of 1.1 percent.

The Great American Insurance transaction is a first issuance and covers named storm and earthquake perils in the US and Canada.

Both transactions provide some indication of the competitive dynamics in the convergence space, one that regular and first-time issuers are keen to take advantage of.