The global insurance and reinsurance community descended on Monte Carlo last week for the annual gauntlet of 30-minute meetings that will shape the January 1, 2014, reinsurance renewal. As expected, the capital markets were among the hottest topics on the agenda — which hardly comes as a surprise given that 2013 catastrophe bond issuance activity is already above $5 billion. With the catastrophe bond sector on the minds of the market, let’s take a look at five trends likely to continue through the fourth quarter:
1. Catastrophe bond diversity: A wide range of transactions has come to market this year, from the $60 million Sullivan Re to the $500 million Tar Heel Re. Regions represented include continental Europe, Japan, Australia, and Turkey. Sponsors have used industry loss index, indemnity, and parametric triggers. And new sponsors include First Transportation Mutual Assurance Co. and AXIS Capital. While U.S. wind continues to account for most catastrophe bond exposure, investors have gained access to many more choices.
2. Increased demand for new index products: Sponsors, investors, and intermediaries have made themselves clear: They want more industry loss indexes. The PCS tools for the United States and Canada have served the industry well, but much more appetite remains. In particular, the market is looking for more international coverage as well as a tool for the global energy and marine sector.
3. Indemnity triggers: The growth and maturation of the catastrophe bond space has contributed to the increased use of indemnity triggers. However, indemnity triggers come with a unique set of considerations. (Learn more here.)
4. Internal analysis for secondary trading: As the secondary market for catastrophe bonds continues to develop, investors are looking for new ways to analyze their alternatives. Many have pointed to the PCS historical catastrophe loss database as an important tool for examining loss development in related events.
5. Smaller catastrophe bond transactions: Several indicators of increased small transaction issuance have emerged this year. Two Florida-only catastrophe bonds came to market: Sunshine Re at $20 million and Armor Re at $183 million. And Tokio Millennium Re and Kane Group announced two platforms for issuing small transactions. The Texas Windstorm Insurance Association used the Kane platform to complete a $9.5 million deal providing cover for U.S. wind.