Private cat bonds offer flexibility and less frictional costs

The growing number of private catastrophe bond transactions coming to market suggests a continued interest in increased flexibility and frictional cost reduction while still maintaining access to capacity from providers that have liquidity mandates, according to the latest PCS Q1 2017 Catastrophe Bond Report.

It noted in the report that in the first quarter of this year, sponsors completed five private transactions, two of them not categorized as cat bond lite. Of the three cat bond lite transactions in the first quarter of 2017 (none were completed in the first quarter of 2016) they ranged from $5 million to $63 million, with the total for the quarter reaching $118 million.

Two had indemnity triggers, and one trigger was not disclosed. One, AlphaTerra, covered non-US risk only (Brazil).

“The broadening use of private catastrophe bonds (of which cat bond lite is a subset) suggests a continued interest in increased flexibility and frictional cost reduction while still maintaining access to capacity from providers that have liquidity mandates,” the report said.

The report notes that the development of this private market is significant against a backdrop of growing demand in the ILS space for new risk areas and types of risk. “Conversations throughout the January 1, 2017, renewal and after have emphasized the interest the ILS market has in lines such as global marine and energy, terror, and cyber, among others,” it said.

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