Capital Markets Experts Expect Cat Bond Rebound After Traditional 3Q Lull
OLDWICK, N.J. //BestWire// - Capital markets experts expect catastrophe bond issuance to ramp up for the fourth quarter after going through its traditional third-quarter lull -- albeit an unusually low one.
There was one workers' compensation bond and a small amount of private catastrophe bonds issued during the third quarter, but no property/catastrophe issuance, according to a report from Property Claim Service. The workers' comp bond was Golden State Re II, a four-year, $250 million deal sponsored by California's State Compensation Insurance Fund (Best's News Service, Sept. 26, 2014).
Paul Schultz, chief executive officer of Aon Benfield Securities, told Best's News Service the issuance amount in the third quarter ranks among the lowest third quarters in years. However, he cautioned against reading into that statistic too deeply and said he expects issuance levels in the fourth quarter to rebound "very strongly," with a forecast of $2.5 billion to $3 billion of issuance in the quarter.
"It's an interesting dynamic where we're certainly seeing more activity generally in the market, but the third quarter of this year was very light, even on a historical basis," Schultz said.
The third quarter is typically slow because it corresponds with peak hurricane risk and most sponsors try to time their offerings to not correspond with that part of the season, said Cory Anger, a managing director at GC Securities and its global head of ILS structuring.
The PCS report said the market has not seen a silent third quarter for property/catastrophe issuance in at least a decade, while noting the fourth quarter tends to be busier. The full-year property/catastrophe issuance level would be far ahead of 2013's if this fourth quarter sees the same level of issuance as it did last year, the report said.
"We do expect it to be an active time period," Anger said of the fourth quarter. "However, I see more issuance moving to the first quarter, and that is just based on the timing of sponsors making decisions."
Excluding privately placed deals, total issuance through Sept. 30 is $5.95 billion, compared with the same time in 2013 when issuance was at $5.26 billion, Anger said.
"I think we have a really good chance of exceeding the all-time issuance," Anger said.
Nelson Seo, co-founder and managing principal of Fermat Capital Management LLC, a firm that manages portfolios of insurance-linked securities, said there is definitely issuance coming into the market in the fourth quarter, but there isn't much maturity happening in the fourth quarter. However, many bonds will mature in the first quarter of 2015, he said.
Along with the Golden State Re II deal, there was a handful of private catastrophe bond placements in the third quarter. One was Market Re 2014-4, which closed at $30 million and provides two years of coverage for North American earthquake. Another was Dodeka III, which closed at $10 million, according to the PCS report.
So far this year, 14 deals have been done in private cat bond format for a total of about $480 million in issuance, Anger said. That compares with all of 2013 when five private deals were placed for about $181 million in issuance, she said.
"We see that the private cat bond market is growing and we would expect it to grow into 2015," Anger said.
(By Michael Buck, senior associate editor, BestWeek: Michael.Buck@ambest.com)