Last year, $500 million in private catastrophe bonds came to market, nearly half of them publicly announced. In the first quarter of 2015, approximately $200 million in “cat bond lite” transactions were completed, and the rapid growth of this structure suggests the speed, flexibility, and tactical benefits are resonating with the insurance-linked securities (ILS) community. Download our new report to learn more about cat bond lite and why it has become so important. Key issues include:
1. Speed: Cedents can take a cat bond lite from idea through execution in as few as ten days (once the risk piece is in place).
2. Flexibility: Risk bearers can use “lites” to allocate capital, lay off risk, and rebalance their exposures without having to rely solely on the secondary market or new issuance pipeline.
3. Liquidity: The underlying contract may be a traditional industry loss warranty (ILW), but the fact that it is securitized can help attract capital providers and also facilitate secondary trading later.
4. Low frictional costs: The cat bond lite structure offers a streamlined approach that obviates the need for some of the costs involved in a traditional catastrophe bond.
5. New entrants: Already, the participant base has expanded, and many other ILS market players have been eyeing the cat bond lite sector in recent months.
6. New risk-bearer types: If use of the structure reaches further down the risk and capital supply chain, adoption could grow much faster.
7. New markets: Insurers and reinsurers in regions with smaller risk transfer requirements could access capital markets capacity via cat bond lite. Canada, for example, comes to mind.
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.