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Catastrophe Bond Update: Five Important Insights into 2012

With the first two quarters of 2012 now in the rearview mirror, looking back at the catastrophe bond market presents an attractive picture. A robust issuance year so far has led to $3.6 billion in new capacity and a variety of transaction types and triggers.

Some of it is déjà vu: This year’s catastrophe bond issuance activity resembles much of 2007. According to PCS Catastrophe Bond Report: Is It 2012 or 2007? — a new study from Verisk’s Property Claim Services® (PCS®) — the similarities between the 2007 and 2012 catastrophe bond issuances are striking.

Among the key findings:

  • The dollar value of catastrophe bonds with PCS triggers issued during the first half of 2012 increased 33 percent over the same period in 2011, accounting for $1.6 billion in newly issued limits.
  • The number of catastrophe bonds with PCS triggers grew from seven in the first half of 2011 to nine in the first half of 2012, up 22 percent.
  • As in 2007, a large indemnity-triggered catastrophe bond came to market in 2012. This year, it was Everglades Reinsurance Ltd., with $750 million in limits. It’s the largest catastrophe bond since Merna Reinsurance Ltd. ($1.1 billion) in July 2007.
  • While talk of a shift in the catastrophe bond tenor may have started several years ago, today it is firmly taking root — with more transactions than ever carrying four-year durations.
  • PCS continues to focus on cross-border growth. The company supplied the trigger for the first catastrophe bond that covers earthquake risk in Canada and the United States. (The bond uses another trigger for hurricane risk in the United States and the Caribbean.)

Note: Some data comes from the Artemis Deal Directory.

Gary Kerney

Gary Kerney, one of the most prolific contributors to this blog, retired from Verisk in 2013. Mr. Kerney served as assistant vice president, Property Claim Services (PCS). Since joining PCS in 1981, he worked on catastrophe identification, loss estimating, and catastrophe response and mitigation.

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