The Rise of the Private Catastrophe Bond

By Gary Kerney May 28, 2013

The Artemis Deal Directory added its second private catastrophe bond of the year. Sunshine Re is a $20 million transaction, sponsored by Florida Municipal Insurance Trust. It follows Skyline Re, a $61.2 million deal sponsored by The Cincinnati Insurance Company. And not listed in the directory because of insufficient information, RenaissanceRe reportedly completed a private transaction this year.

The apparent uptick in small transactions indicates progress on that front, as does the recent Florida-only Armor Re catastrophe bond, which provides $183 million in cover to American Coastal Insurance Company. Further, the buzz at the recent InsiderSCOPE event, hosted by Insurance Insider, suggests that more small deals are on the horizon. Insurers, reinsurers, and investors covering Florida, heading into the June 1, 2013, reinsurance renewal, have discussed capital markets alternatives this season. While many Florida insurers may not enter the space this year, the stage is certainly set for 2014, as long as the existing trend retains its momentum.

Smaller sponsors have unique needs, and as transactions fulfill those needs, more transactions become likely. Insurers considering the PCS® Catastrophe Loss Index for their transactions should remember that PCS catastrophe bulletins include loss and claim count estimates by state and line of business. Rather than issue a catastrophe bond that triggers on an industrywide loss estimate, insurers can take a narrower approach, for example, choosing to use only Florida personal property loss estimates. In addition to providing more targeted protection, this narrower approach can help reduce frictional costs, as it uses only a subset of the PCS loss estimate.

The catastrophe bond market appears on the verge of a significant step forward. Engagement of the midmarket has long been a barrier to a large increase in the size of the sector. Whether you’re planning to issue a catastrophe bond or benchmark your investments in this space, you’ll need access to data. Download Everything You Need to Know about the PCS Catastrophe Loss Index to learn how PCS can help.


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.