New Catastrophe Bond and ILS Issuance Slowed in Third Quarter

While new issuance in the catastrophe bond and insurance-linked securities (ILS) market slowed significantly in the third quarter of 2022, issuance for the year's first 9 months remains above average, according to Artemis.

In its Q3 2022 Catastrophe Bond & ILS Market Report, Artemis notes that the third quarter typically sees the lowest volume of new catastrophe bond and ILS issuance. Indeed, the third quarter is the only quarter to see average new issuance below $1 billion over the past decade, the Artemis report says.

This year's third quarter was well below the 10-year average, however, with just $266.5 million raised from 7 transactions. Six of the quarter's seven transactions were private, Artemis says. That new issue volume was $666 million below the 10-year average, according to the report. Year on year, this year's third-quarter catastrophe bond and ILS issuance was down by approximately $1.1 billion, Artemis reports.

While third-quarter issuance was down, the picture for the first 9 months of 2022 is a very different one, Artemis notes, driven primarily by very strong issuance during the year's first half.

Indeed, with $8.7 billion in new catastrophe bond and ILS issuance, the first half of 2022 was the market's third most active ever, Artemis reported earlier this year. Of that total, $8 billion took the form of traditional catastrophe bond deals, according to Artemis.

The second quarter was particularly active with 24 transactions providing reinsurance or retrocession protection against a variety of catastrophe risks, Artemis reports. Combined with three private ILS deals, second-quarter issuance reached approximately $5.2 billion. The 27 deals represented the second-largest number in the second quarter in the market's history, according to the first-half Artemis report, only one short of the second-quarter record in 2017 and topping the 25 deals in the second quarter of 2021.

According to Artemis, this year's third-quarter catastrophe bond and ILS issuance brought the year's total new issue volume to more than $8.9 billion over the first 3 quarters. That compares to average 9-month issuance of roughly $7.6 billion, leaving this year's issuance through the first 3 quarters $1.3 billion greater than average, despite what Artemis characterized as one of the quietest third quarters on record and the lowest third quarter in the past decade.

With third-quarter issue volume down, the average size of deals in the quarter was down as well, Artemis says. At $38 billion, the quarter's average deal size was the lowest of the past decade and far below the $138 billion seen in the third quarter of 2021, as well as the 10-year average of $118 billion.

The quarter's seven deals also were a decline for the third quarter, the lowest third-quarter total since 2019 and below the 10-year average of 7.7 deals. Most of the third quarter's deals came to market in July—typically the quarter's most active month—with the other two issued in September, Artemis says.

July has seen an average of $523 million in new catastrophe bond and ILS issuance over the past 10 years, though this July saw just $190.5 million come to market, well below the average and $335 million less than last year, the report says. Similarly, September's new issue volume fell somewhat short. At $76 million, it was $225 million below the 10-year average, Artemis says.

Among the perils covered in the third-quarter catastrophe bond and ILS issues were mortgage insurance risk, unknown property catastrophe risks, California wildfire, and US multiperil, according to the Artemis report.

The third quarter's deals included a $75 million US multiperil deal from new sponsor Canopius Group, Artemis reports. The deal, which runs until the end of 2025, provides protection against losses from US named storms and earthquakes, including catastrophes in Puerto Rico and US Virgin Islands, the report says.

The Artemis report notes that following a record-setting 2021 for mortgage ILS, activity in that segment has slowed in 2022. While 2021 saw 14 transactions transferring $6.3 billion of mortgage risk, this year's first and second quarters each only saw one deal come to market, the third quarter saw two deals together transferring $439 million in mortgage risk and bringing 2022's mortgage ILS issuance to approximately $1.2 billion from the four transactions through the first 9 months.

The mortgage deals represent 12 percent of this year's new issuance, Artemis says, down from 32 percent in 2021. Catastrophe risk was the major factor in the first 3 quarters' new issuance at $7.8 billion, 78 percent of the total new volume.

The slow third quarter did result in outstanding market catastrophe bond and ILS issuance failing to achieve quarter-to-quarter growth in the third quarter, the Artemis report says. At the end of September, total outstanding volume in the catastrophe bond and ILS market was $37.8 billion, down approximately $400 million from $38.2 billion at the end of the second quarter.

Still, outstanding market volume is $1.9 billion greater than at the end of 2021, Artemis says, and $4.7 billion higher than at the end of last year's third quarter.