Quiet third quarter for cat bond issuance, but 2014 could be ‘record-setting’

No property and casualty catastrophe bond issuance activity occurred in the third quarter this year, but 2014 could still potentially be “record-setting,” according to a new report from Property Claim Services.

This year had the quietest third quarter in the past decade, and was a major change from Q3 last year, when sponsors raised $1.5 billion, PCS noted.

That quarter was high above the ten-year average of $680 million, with high periods in 2013 and 2007, the report added.

Still, 2014 could still be “record-setting,” PCS said. “The fourth quarter tends to be busy, with sponsors using catastrophe bonds as part of a broader risk and capital management plan ahead of the January 1 renewals,” it said.

“A repeat of fourth-quarter 2013 issuance levels would put full-year 2014 issuance far ahead of last year’s.”

In the first nine months of this year, insurers and reinsurers have issued about $5.7 billion in cat bonds, up roughly 6% over 2013, according to the report.

Overall, 2014 is among the most active cat bond issuance years in history, although it’s still far behind 2007 and 2013, the report also noted.

Issuance for cat bonds with some North American exposure also increased from $4.3 billion in the first nine months of 2013, to $4.8 billion in the same period this year.

However, the number of completed catastrophe bonds fell 28%, from 25 to 18, from the first nine months of 2013 to the first nine this year. The number of cat bonds with North America risk exposure also fell from 22 to 14, the report noted.

“While sponsors have completed fewer transactions, the deals are larger, as demonstrated by the increase in raised capital and steep declines in the number completed,” the report also said.

“For the first nine months of 2013, the average catastrophe bond size was $216 million. For the same period this year, it’s $317 million — an increase of nearly 50 percent.”