Facts + Statistics: Catastrophe bonds

The securitization of insurance risk: Catastrophe bonds

Catastrophe (cat) bonds are one of a number of innovative risk transfer products that have emerged as an alternative to traditional insurance and reinsurance products. Insurers and reinsurers typically issue cat bonds through a special purpose vehicle, a company set up specifically for this purpose. Cat bonds pay high interest rates and diversify an investor's portfolio because natural disasters occur randomly, and are not correlated with other economic risk. Depending on how the cat bond is structured, if losses reach the threshold specified in the bond offering, the investor may lose all or part of the principal or interest.

Catastrophe bond issuance in 2018 dipped slightly to  $9.1 billion from 2017’s record high of $10.3 billion, according to the GC Securities division of MMC Securities Corp. Catastrophe bond risk capital outstanding in 2018 of $28.7 billion surpassed the record high of $25.2 billion in 2017. U.S.-based perils comprised the majority of cat bonds issued in 2018. GC Securities expects the upward trend in issuance to continue in 2019.

Top 10 Catastrophe Bond Transactions, 2017 (1)

(US$ millions)

Rank Special purpose vehicle Sponsor name Risk amount Peril and risk location
1 Kilimanjaro Re Ltd. 2017-1 Everest Re $950 U.S./Canada named storm, earthquake
2 Ursa Re Ltd. 2017-1 California Earthquake Authority 925 California earthquake
3 Galilei Re Ltd. 2017-1 XL Insurance (Bermuda) Ltd. 525 U.S. named storm, U.S./Canada earthquake, European windstorm, Australian tropical cyclone, Australian earthquake
4 Aozora Re Ltd. 2017-1 Sampo Japan Nipponkoa 480 Japan typhoon
5 Residential Re Ltd. 2017-1 USAA 425 U.S. tropical cyclone, earthquake including fire following, severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact, other perils
6 Alamo Re Ltd. 2017-1 Texas Insurance Windstorm Association 400 Texas named storm, severe thunderstorm
7 Ursa Re Ltd. 2017-2 California Earthquake Authority 400 California earthquake
8 Tailwind Re Ltd. 2017-1 Validus Re 400 U.S./Canada named storm, earthquake
9 Sanders Re Ltd. 2017-1 Allstate 375 U.S. named storm, earthquake including fire following, severe thunderstorm, winter storm, volcanic eruption, meteorite impact
10 Caelus Re V Ltd. 2017-1 Nationwide  375 U.S. named storm, earthquake, severe thunderstorm, winter storm, wildfire, volcanic eruptions, meteorite impact, other perils

(1) Excludes non-property/casualty deals.

Source:  GC Securities, a division of MMC Securities LLC., a registered broker-dealer, member FINRA/SIPC.

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Catastrophe Bonds, Risk Capital Outstanding And Annual Issued, 2009-2018

(US$ billions)

Source: GC Securities, a division of MMC Securities Corp., a registered broker-dealer, member FINRA/SIPC, and Guy Carpenter.

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