Pac Alliance cat bond buoys global market to Q1 record

The novel US$1.36bn catastrophic bond scheme Pacific Alliance nations launched successfully in February, lifted the global catastrophe bond and insurance linked securities (ILS) market to a new Q1 high, according to a study from sector research firm Artemis.

The firm's "Q1 2018 Catastrophe Bond & ILS Market Report" noted that for the fifth consecutive year, catastrophe bond and ILS issuance broke records in the first quarter, with approximately US$4.24bn of new risk capital brought to market from 23 tranches of notes via 17 deals.

The study draws from the internally managed Artemis Deal Directory and shows that this is the first time first quarter issuance has surpassed US$4bn globally.

"A diverse spread of sponsors came to market in the first quarter of 2018, including both repeat and first time market entrants," read the report. "In total, five first time sponsors entered the market in Q1, including the republics of Chile, Colombia, and Peru, Aioi Nissay Dowa Insurance Co., Ltd. and Essent Guaranty, while four transactions, or roughly US$133mn of first quarter issuance was privately placed."

Backed by the World Bank, the three LAC newcomers along with cat bond veteran Mexico all took on cat bonds to ensure recovery funds in the event of earthquakes. Plans to form a jointly issued catastrophe bond scheme under the Pacific Alliance accelerated last September and October following Mexico's twin killer earthquakes on September 7 and 19.

Other catastrophic events, including Hurricanes Irma and Maria, drew a spotlight to the urgent need to beef up protection against multiple impact and tail events to ensure deep financial capacity to endure clustered events and protect economic stability to affected nations and their trade partners.

"Despite the impacts of catastrophe events in the second half of 2017, catastrophe bond and ILS investors took advantage of a strong issuance pipeline in the opening three months of 2018, clearly remaining attracted to the asset class in spite of recent losses," read the study. "As a result, the outstanding market size at the end of the first quarter of 2018 hit US$32.83bn, which represents growth of almost US$1.8bn since the end of 2017."