Cat bonds to see more innovation, development in 2015
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After a record-setting 2014, this year will likely see greater innovation in the catastrophe bond market, MMC Securities Corp.'s GC Securities said Wednesday in a report.
“Catastrophe Bond Update, Fourth Quarter 2014: Issuance Reaches Industry Full Year Record” says new developments could include bonds covering nonmodeled natural perils such as meteorite impact, wildfire and volcanic eruption, as well as man-made perils such as terrorism.
Evolution in the space could also include longer-duration bonds of greater than five years as well as increased utilization of insurance-linked securities by corporate sponsors.
“Pricing levels for first quarter 2015 deals will be influenced by the number of bonds maturing during the period,” said the report, with 10 bonds maturing in January alone and another six through February and March.
The report also pointed to the increasing use of indemnity triggers. Eighty-one percent of the property/casualty risk capital based on catastrophe bond transactions was structured with an indemnity trigger on either a per-occurrence, annual aggregate or multiyear aggregate basis, up from 30% percent in 2011 and 55% in 2013.
2014 was a record-setting year for catastrophe bond issuance, with just over $8 billion in new issues as well as a record $22.87 billion of outstanding risk as of year-end.
“Sponsors took advantage of strong investor demand as more than 70% of deals coming to market in 2014 settled at greater notional value than initially expected,” Cory Anger, New York-based global head of ILS structuring for GC Securities, said in the statement.
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