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Cat Bond Lite: A Rapid Start to 2015

The insurance-linked securities (ILS) market appears to have seen the value of the “cat bond lite” structure. At least, that’s what 2015 issuance activity indicates. Sponsors have completed nearly $150 million in publicly announced cat bond lite transactions, according to data in the Artemis Deal Directory — already more than half of last year’s $242 million.

This year, five publicly announced cat bond lite transactions have been completed, all using the PCS Catastrophe Loss Index. In 2014, ten publicly revealed cat bond lite transactions came to market. Half of them (42 percent by notional) used the PCS index, two had indemnity triggers (17 percent by notional), and one had a parametric trigger. The triggers for the remaining two are undisclosed.

Publicly revealed cat bond lite transactions, of course, remain a subset of the overall private catastrophe bond market (i.e., those that are not listed), and according to various reports, publicly disclosed transactions accounted for approximately half the total private transaction market.

As 2015 progresses, we’ll be keeping a close eye on this market, as it has the potential for continued significant growth. Last year was likely the breakout year for cat bond lite, given the limited use of this approach in 2013, and early activity could be a sign of the ILS market’s deepening commitment to this streamlined form of securitized risk transfer.

Tom Johansmeyer

Tom Johansmeyer is Assistant Vice President – PCS Strategy and Development at ISO Claims Analytics, a division of Verisk – insurance solutions. He leads all client- and market-facing activities at PCS, including new market entry, new solution development, and reinsurance/ILS activity. Currently, Tom is spearheading initiatives in global terror, global energy and marine, and regional property-catastrophe loss aggregation. Previously, Tom held insurance industry roles at Guy Carpenter (where he launched the first corporate blog in the reinsurance sector) and Deloitte. He’s a veteran of the US Army, where he proudly pushed paper in a personnel position in the late 1990s.

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