Artemis data reveals that robust investor demand for standard 144A disaster bond-linked returns led to strong prices execution for sponsors of deals in the first-quarter of 2021, a trend that has continued into Q2.During the opening quarter of the year, the typical cost change of effectively provided conventional 144A cat bond notes totaled up to -9.8%, as reported in Artemis Q1 2021 disaster bond and insurance-linked securities (ILS) market report.
In Q1, this notable typical decline in pricing signified strong investor demand, with all but one out of 13 tranches issued rates listed below the mid-point of preliminary guidance while marketing.
As a result of this increased demand, sponsors had the ability to lock-in multi-year reinsurance/ retrocession protection at more appealing rates during the duration.
Additionally, the chart listed below programs that over the previous five quarters, only Q2 2020 experienced, on average, a positive cost modification from the mid-point of initial guidance.
A few of the cost declines seen throughout Q1 truly were rather remarkable, which is reflected in the year-on-year modification from a typical cost decrease of 1% in Q1 2020, to the -9.8% decline recorded in Q1 2021.
During the first-quarter of this year, the Class B tranche of Sakura Re Ltd. (Series 2021-1) notes was the only slice of issuance that priced at the mid-point of preliminary guidance.
On the other hand, the Class A tranche of notes from the same transaction actually experienced the steepest rate decline while marketing, with pricing boiling down by 18.2% to settle at a discount coupon of 2.25%.
The tranche of Kizuna Re III Pte. Ltd. (Series 2021-1) keeps in mind at first went out to financiers with a cost mid-point of 2.375%, however strong demand saw rates decrease by 15.8% to pay investors a voucher of 2%.
The Class A tranche of First Coast Re III Pte. Ltd. (Series 2021-1) notes also saw prices decrease by 15.8% while marketing as the voucher ultimately settled at 6%, against a preliminary mid-point of 7.125%.
Both tranches of Sierra Ltd. (Series 2021-1) notes also experienced strong demand while marketing, as prices for these two tranches declined by 13.6% from the mid-point, paying investors a discount coupon of 2.7% and 4.75%.
The Cape Lookout Re Ltd. (Series 2021-1) transaction saw its prices repaired at 3.25%, representing a decline of 13.3% from the mid-point of assistance.
A portion price modification in the double figures also accompanied the current Ursa Re II Ltd. (Series 2021-1) deal, as pricing dropped by 10.7% to settle at a fixed coupon of 6.25%.
A lower, albeit still negative cost modification of -6.3% was seen with the Cosaint Re Pte. Ltd. (Series 2021-1) deal.
Furthermore, the rates dropped on both tranches of the FloodSmart Re Ltd. (Series 2021-1) issuance, by 6.3% in the Class A tranche and by 3.6% in the Class B tranche.
Torrey Pines Re Pte. Ltd. (Series 2021-1) was the only other 144A catastrophe bond issued in the quarter. With this offer, the Class A tranche saw its pricing come down by 5.9% and the Class B tranche by 4.5% from the mid-point of initial rate guidance.
As the information reveals, the spread (voucher minus anticipated loss) on many cat bond notes dropped considerably throughout the first-quarter due to strong ILS investor cravings.
You can see above that the spread of feline bond issuance declined from more than 7% in 2012 to a low of 2.92% in 2014. And, with the exception of 2016, the spread hovered around the 2.9%– 3% range for the next 4 years, prior to approaching 5% in both 2019 and 2020.
As at the end of the first-quarter of 2021, Artemis information shows that the spread of feline bond issuance remained above the 3% mark, however currently stays some way listed below the 4.96% seen at the end of 2020.
During 2020, rates and pricing in the ILS market for catastrophe bond coverage increased on the back of solidifying reinsurance market conditions to levels not seen for a number of years, but there was proof towards completion of 2020 that things were beginning to soften once again.
While rates have actually held at greater levels in early 2021, demand for the disaster bond product is presently very high, which in turn has served to moderate rate boosts and essentially lower the spread of cat bonds up until now this year.
Early Q2 feline bond issuances have followed fit, with multiples falling through the deals provided up until now and feline bond rates seemingly now softening even more.
Of course, with the Florida-focused mid-year renewals quickly approaching it remains to be seen what happens to reinsurance rates and rates for cat bond and ILS service, and whether anticipated increases suffice to reverse the present pattern.
Stay tuned to Artemis as we move through the second-quarter of 2021, which is forecast to be a busy period for brand-new disaster bond issuance and well detail every deal in our Deal Directory.
Well keep you upgraded on all catastrophe bond and related ILS transaction issuance, as well as developing trends in the cat bond and insurance-linked securities (ILS) market.
For complete details of first-quarter 2021 feline bond and related ILS issuance, consisting of a breakdown of offer circulation by aspects such as hazards, sets off, anticipated loss, and rates, in addition to analysis of the issuance trends seen by month and year.
Download your free copy of Artemis Q1 2021 Cat Bond & & ILS Market Report here
For copies of all our disaster bond market reports, visit our archive page and download them all.