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The CAT bonds market remains dynamic

Despite the increasing number of natural disasters in 2017, the CAT bond market continues to grow. Despite recent poor performance, both outstandings assets and new issuances have reached record levels by the end of 2017.

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Between August and October 2017, several very violent hurricanes have succeeded in the Caribbean and the United States (Texas and Florida) including Harvey, Irma and Maria, "causing nearly one hundred billion dollars in insured damage", said Marc-Philippe Juilliard, Director Insurance at S & P Global Ratings, during a press briefing a few days before The 2018 Monte Carlo Reinsurance Rendez-vous. Thus, "the year 2017 is one of the most expensive year for insurers and reinsurers since 2000, after 2005 and 2011," he added.

Poor performances

In this context, the performance of CAT bonds (ILS-Insurance Link Securities), in particular those relating to hurricane risk in the United States, suffered in 2017. As a result, the broad Eurekahedge index representative of the asset class performance - also including CAT bonds focused on earthquake risk in Asia and Europe - recorded a negative performance last year, the first time since 2006. It must be said that following the hurricane season last year, eighteen CAT bonds were placed at risk of default and five of them could be subject to a total loss of invested capital according to the website Artemis, specialized in ILS markets.

But record levels of outstanding assets and new issuances

Despite this poor performance, outstanding assets as well as CAT bond new issuances, reached record highs during that year, reaching $ 35 billion and $ 10.3 billion, respectively, at the end of July 2018.

It must be said that with a very low interest rate environment at the moment, CAT bonds, with their attractive yield within the bond asset class, are attracting increasing interest from investors, including institutional investors, as well as private bank clients.

Moreover, insurers and reinsurers have understood this, and are currently increasing the number of CAT bonds issuances that now represent nearly 20 % of the financial needs of the sector’s players.

RF , September 2018

Article also available in : English EN | français FR

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