Insurance-linked securities had a banner year
Conditions in Q1 2020 were perfect for new issuance, as investors held large sums of capital to deploy into catastrophe bonds.
During 2020, the number of insurance-backed securities issued hit a record, according to Swiss Re, which reported more than $11.3 billion was distributed. This represents a year-on-year increase of more than 106%.
This growth was despite a March pause in the market. However, a rebound began in April with six recorded transactions in the month as trading resumed, according to Swiss Re.
The catastrophe bond market ended the year with an outstanding notional of $31.7 billion, which was an increase of 5% compared with the previous year. Additionally, net cash flow into the market was nearly 10 times that seen in 2019.
Swiss Re noted conditions in Q1 2020 were perfect for new issuance, as investors held large sums of capital to deploy into catastrophe bonds. Overall, there were 49 transactions this past year, more than double the number seen in 2019, and nine new cat bond sponsors came online to bring the total to 38.
Market faltered in Q2, but ended year strong
The market stumbled after a record-setting Q1, Swiss Re reported, but bounced back to finish the year with strong results for two consecutive quarters. In the third quarter, the California Earthquake Authority announced its second transaction of the year, which upsized three times and became the largest transaction of the year, valued at $775 million, with two classes of notes.
During the past two years, U.S. wind bonds have dominated the market. However, just 47% of the single-peril bonds issued in 2020 covered the sector. This is down from 55% seen the year prior. The remainder covered many more perils than what was seen in 2019, with U.S. earthquake bonds increasing from 24% to 32% of the single-peril subset market.
Around 7% of total redeemed notional in 2020 was paid out to cat bond sponsors to cover loss payments, according to Swiss Re. The remaining 93% went back to investors.
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