A record 29 cat bond transactions were brought to market in 2013, as annual issuance reached $7.1 billion, according to Willis Capital Markets & Advisory.
The level of issuance was remarkably close to the record issuance of 2007, when $7.2 billion of bonds were brought to market, and reflects a rebound in the market since the financial crisis.
Outstanding capacity at the year-end reached $18 billion and has grown at a compounded rate of 18 percent since 2000.
The report found that all but one of the 2013 fourth quarter sponsors were repeat sponsors, suggesting that cedants are increasingly comfortable with alternative risk transfer. It does however raise questions about attracting new risks and cedants into the space.
Bill Dubinsky, head of ILS at WCMA, says: “2014 may prove to be a pivotal year for the cat bond and sidecar markets. On the one hand, 2013 was a banner year for cat bonds, sidecars, and collateralized reinsurance with $7.1 billion in non-life cat bond issuance and considerable sidecar activity despite the softening market conditions.”
“On the other hand, traditional reinsurers are reacting aggressively to maintain market share by launching preemptive quotes to defend previously unassailable positions on the programs of favoured clients.”
Credit Suisse has also released a report on the ILS market, which argues that the size of the market is set to double by 2018. The report says that convergence and alternative capital accounts for around $45 billion of current reinsurance, but that the industry can expect a further $40+ billion in the coming years.
The report says that peak peril risks can benefit from placement in the capital markets where capacity is often cheaper, placing considerable pressure on traditional reinsurers. This has encouraged many reinsurers to pursue third party management strategies, but there are questions regarding how much involvement in that space will impact their core portfolio.
We speak with Michael Zaremski, co-author of that report in more detail here.
Willis, cat bonds, ILS, Credit Suisse