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Bermuda:Re+ILS Spring 2016

2015 was an interesting year for cat bonds, from record high issuance in Q1 to a six-year low in Q4. Cory Anger, global head of ILS Structuring; Jordan Brown, analyst; Ryan Clarke, senior vice president and Sung Yim, senior vice president, all of GC Securities, report. 144A property and casualty (P&C) catastrophe bond primary issuance levels were uncharacteristically low in the fourth quarter, with an aggregate notional of $1.425 billion of 144A P&C catastrophe bonds issued, benefiting five sponsors. The 2015 full year primary issuance of 144A P&C catastrophe bonds totalled $5.917 billion from 25 transactions, benefiting 24 sponsors. 144A P&C risk capital outstanding as of December 31, 2015 totalled $22.640 billion, 0.56 percent lower than 2014’s all-time high in the 144A P&C catastrophe bond market (see Chart 1). Fourth quarter primary issuance After 2015’s beginning with record historical issuance levels in the first quarter, the fourth quarter of 2015 was dramatically different— only $1.425 billion of 144A P&C catastrophe bonds benefiting five sponsors were completed. This represented the second lowest level since 2005 and the lowest since 2009. One explanation for this development may be that sponsors who would ordinarily have been willing to issue in the fourth quarter of the calendar year may have had the flexibility to delay their issuance to the following first quarter in order to obtain best execution and/ or avoid transaction crowding. We view sponsors’ willingness to focus on best execution rather than specific renewal dates (while still important for overall capital planning purposes) as a further sign of the maturity of the insurance-linked securities (ILS) space. The ILS space is perceived as performing in a manner similar to the broader capital markets with their availability of capital throughout the calendar year (see Charts 2 and 3). 49 Spring 2016 Bermuda:Re/insurance+ILS Despite a limited amount of capital placed in the quarter, one new sponsor (and the second corporate of the year), Amtrak’s captive Passenger Railroad Insurance, and four repeat sponsors (Everest Re, Munich Re, USAA and Zenkyoren) accessed the 144A catastrophe bond market. The most significant transaction of the fourth quarter was the successful placement of $275 million of Principal At-Risk Variable Rate Notes issued from the newly formed PennUnion Re special purpose reinsurer in order to provide reinsurance protection to corporate sponsor Amtrak’s captive, Passenger Railroad Insurance. The Series 2015-1 Notes provide per occurrence, parametric-triggered protection from storm surge and wind resulting from named storms as well as earthquakes affecting the Northeast region of the US for a period of approximately 3.17 years. The transaction is triggered 25,000 20,000 15,000 10,000 5,000 0 2,500 2,000 1,500 1,000 500 0 2,500 2,000 1,500 1,000 500 0 CHART 1: 144A P&C CATASTROPHE BOND RISK CAPITAL ISSUED AND OUTSTANDING CHART 2: FOURTH QUARTER 144A P&C CATASTROPHE BOND HISTORICAL PRIMARY ISSUANCE CHART 3: FIRST QUARTER 144A P&C CATASTROPHE BOND HISTORICAL PRIMARY ISSUANCE 874.2 1,052.5 1,142.0 1998 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 989.5 1,988.2 7,677.0 5,085.0 1,142.8 1,499.0 13,416.4 18,576.9 14,839.3 12,538.6 12,195.7 12,342.8 22,639.6 22,767.8 12,508.2 4,614.7 7,187.0 3,009.9 3,396.0 4,599.94,107.1 5,855.3 7,083.0 7,926.7 5,917.2 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Risk Capital Issued Risk Capital Outstanding at End of Year Risk Capital Amount (USD Millions) USD Millions USD Millions Source: GC Securities Proprietary Database 966.9 Issuance Issuance Source: GC Securities Proprietary Database Source: GC Securities Proprietary Database


Bermuda:Re+ILS Spring 2016
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