A report from PCS examining the ILS market entitled Underlying Change has found that the market is benefitting from increasing growth, diversification, midmarket participation and innovation.
The report found that 2013 had been a particularly strong year for ILS issuance, with the third quarter breaking all previous levels, even if the year-end results did not quite surpass those of 2007. Nevertheless, $7.2 billion of catastrophe bonds were issued in 2013, up 23 percent on the $5.9 billion issued in 2012.
The report found that US risks continue to dominate issuance, representing $5.4 billion in capital. However, it also noted that significant transactions covering risks in Australia, Japan and Turkey came to market during the year. PCS noted that Canadian and European transactions were more in evidence during the period. PCS said that “appetite for diversifying transactions appears to be on the rise”.
Citing its plans to develop a catastrophe loss index in South Korea, PCS said that the market there had responded favourably. Working with the Korean Fire Protection Association, PCS intends to launch its index services there in 2014. PCS such that the establishment of index-triggered bonds in new regions such as South Korea should help “contribute to future market growth.”
PCS added that it is “committed to helping local insurance industries around the world access industry- wide catastrophe loss data. In addition to helping them with catastrophe response, claims payment benchmarking, and loss reserving, such efforts should help open new opportunities for risk transfer to the capital markets.”
The rise of midmarket interest was also apparent during 2013. PCS found that the average deal size fell from $236 million to $226 million in 213, thanks to an increasing number of small transactions. It is evident that the middle market is becoming increasingly comfortable with the ILS concept. PCS added that figures do not include ‘cat bond lite’ deals, which sit below the threshold for SEC filings. The company said that such deals were also gaining increasing traction, alongside private deals that do not register in market figures.
PCS added that deals were also becoming increasingly innovative, with structures such as the MetroCat bond, which covered storm surge risk for the New York Metropolitan Transport Authority, delivering coverage uniquely tailored to the cedant.
Meanwhile PCS’s expertise has been in increasing demand as a result of rising interest in indemnity triggers, the report found. PCS were confident this trend would continue as sponsors become more ambitious in their transaction structuring. The company added that “catastrophe designation would make it easier for experienced sponsors to include perils other than US wind and earthquake in indemnity-triggered catastrophe bonds.”
PCS, Verisk, ILS, cat bonds