ILS investors took advantage of diversification opportunities in Q1 2021


The issuance of catastrophe bonds and associated insurance-related securities (ILS) offered investors both perilous and regional diversification in the first quarter of 2021, as shown in the Artemis Deal Directory.

In times of financial market volatility, such as the Covid-19 pandemic and the 2008 global financial crisis, the catastrophe bond asset class has proven its ability to provide investors with positive diversification characteristics.

But while the defensive asset class offers low correlation and diversification from the broader financial market turmoil, due to the fact that exposures are largely tied to natural catastrophes, diversification is also evident within the class. of assets itself.

During the first quarter of 2021, $ 4.7 billion in new venture capital was brought to market from 27 transactions consisting of 45 tranches of notes.

Of that amount, 60%, or $ 2.8 billion, offered real estate disaster risk protection and included new, repeat and unknown sponsor agreements.

The Artemis Q1 2021 Catalytic Bond and related ILS market report shows that earthquake risk represented the largest tranche of real estate cat bond issuance during the period, at $ 983.3 million.

This $ 600 million provided earthquake risk protection in the United States and came from a $ 200 million transaction with Sierra Ltd. (series 2021-1) and a $ 400 million transaction with Torrey Pines Re Pte. (Series 2021-1).

Also in the United States, the California Earthquake Authority (CEA) returned in the first quarter of 2021 with $ 215 million in earthquake coverage in California through Ursa Re II Ltd. (series 2021-1).

Japanese insurer Tokio Marine provided some regional diversification in the face of the quarter’s earthquake risk through Kizuna Re III Pte. Ltd. (series 2021-1), a $ 150 million transaction covering earthquake risk in Japan. While Asagao III – White Rock Insurance (SAC) Ltd. added an additional $ 18.3 million in Japan earthquake risk to the global issue.

Interestingly, Sakura Re Ltd. (Series 2020-1) from Japanese insurer Sompo – the only deal to cover multiple risks in multiple countries – has exhibited some earthquake exposure in the United States, on both the first and second event basis .

This $ 400 million transaction offered investors risk and geographic diversification; covering typhoon and flood risk in Japan as well as the aforementioned US earthquake coverage.

Two deals issued during the quarter provided some state-specific diversification in the U.S. The larger of the two, a $ 250 million deal sponsored the North Carolina Insurance Underwriting Association issued through Cape Lookout Re Ltd. (series 2021-1), covered losses from severe storms and thunderstorms in North Carolina.

The other deal was in Florida and was sponsored by Security First Insurance Company. This agreement, First Coast Re III Pte. Ltd. (series 2021-1), closed at $ 225 million and offered protection against named Florida storms and severe thunderstorms.

Largest transaction ever with FloodSmart Re Ltd. also hit the market in the first quarter of this year, as FEMA continues to leverage financial markets to secure flood reinsurance for its National Flood Insurance Program (NFIP).

FloodSmart Re Ltd. (Series 2021-1) brought US $ 575 million of flood risk (from named storms) to the market in the first quarter.

The very first Universal Sponsored Cat Bond (UPCIC), the $ 150 million Cosaint Re Pte. Ltd (Series 2021-1), provided named storm hazard protection in the United States.

In addition, a slew of private deals from unknown sponsors provided investors with $ 217 million in risk diversification for U.S. and unknown properties during the period.

Finally, a new transaction was sponsored by the Danish Red Cross in the first quarter of 2021, Dunant Re IC Limited. This privately placed $ 3 million deal provided investors with risk diversification in the form of a volcanic eruption, which is a first for the market (on a stand-alone basis).

The transaction is structured to be paid if a volcanic ash plume reaches a certain height and the prevailing wind directs the resulting ash to vulnerable communities.

It covers the ten volcanoes considered to present the greatest humanitarian risk. This includes one in Mexico, one in Colombia, one in Chile, one in Guatemala, one in Cameroon, two in Indonesia and three in Ecuador.

Outside of the disaster arena, Aetna, a regular player in the market, issued their usual $ 200 million Vitality Re contract, which allowed for diversification of healthcare in the market.

Also in the first quarter, Build America Mutual Assurance Company returned with its second Fidus Re Ltd. transaction, which transferred $ 150 million of financial collateral risk to financial market investors.

The ILS mortgage issuance was the second largest issue tranche during the quarter, with three deals signed by regular sponsors Arch Capital, Genworth and MGIC increasing the overall issuance by $ 1.47 billion.

issue-by-peril-of-bonds-cat-q1-2021

As the chart above shows, the Cat 144A Bond market remains heavily focused on the US real estate sector.

However, the risks and regions on offer over the period were varied and when you include ILS mortgage trades and non-cat trades, investors clearly have more options than ever before to access insurance-linked or mortgage-linked returns. reinsurance through the cat bond and the larger ILS asset. classify.

Stay tuned to Artemis as we move into the second quarter of 2021 which is expected to be a busy time for new Cat Bonds issuance and we will detail each transaction in our deal directory.

We will keep you updated on all Cat Bond issues and related ILS transactions, as well as evolving trends in the Cat Bonds and Insurance Related Securities (ILS) market.

First Quarter Catastrophe Bonds and ILS Market Report 2021For full details on Q1 2021 Catalytic Bonds and related ILS issuance, including a breakdown of trade flow by factors such as risks, triggers, expected losses and prices, as well as a analysis of emission trends seen by month and year.

Download your free copy of the Artemis Q1 2021 Cat Bond & ILS Market Report here.

For copies of all of our Cat Bond Market reports, visit our archives page and download them all.

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