Catastrophe bond pipeline for Q2 very strong: Willis

by Artemis on April 7, 2014

The catastrophe bond pipeline for Q2 2014 issuance is very strong, according to reinsurance broker Willis, which will please insurance linked investors and managers who are hoping that the strong start to the year seen in the first-quarter continues.

Willis Re and Willis Capital Markets & Advisory unit discussed cat bonds in its latest reinsurance renewals report and suggested that conditions are ripe for more issuance, citing continued strong investor demand for catastrophe bond assets, availability of increasingly wide covers and growing interest from potential sponsors.

The continued demand for catastrophe bonds from institutional investors, such as pension funds, endowments, family offices and other asset managers, are driving cat bond spreads lower, explained Willis Re.

The coverage available under a catastrophe bond is continuing to widen, with terms and structures becoming more flexible. More sponsors are choosing to utilise cat bonds for indemnity protection, said Willis Re, something which is attractive to insurers that may be considering moving part of their reinsurance program to the capital markets for the first time.

This is helping to encourage an increasing amount of interest from U.S. regional and international primary insurance companies to become cat bond sponsors as part of their reinsurance program renewal.

These primary insurers are responding to the lower spreads available on capital markets and ILS products, the increased flexibility available in cat bond terms and the greater coverage available, as well as the increased speed with which a transaction can now be brought to market.

At the same time the catastrophe bond investor base is shifting towards money managers, according to Willis Re, which brings yet another large source of capital into the space, with a whole new set of investment managers and potential investors to educate on the ILS asset class. This too will help to stimulate more issuance as more capital becomes available in the capital market to absorb risks.

In its reinsurance renewals report, Willis Re noted that recent deals have seen sponsors achieve extremely attractive terms and pricing; “Increased investor demand for catastrophe bonds allowed some primary buyers to sponsor new bond offerings and, much like the traditional placements, the new issuances provided improved terms for buyers with savings on price and broader coverage.”

Willis is of course involved in the structuring and bookrunning of catastrophe bond transactions and over the counter trading of ILS through its Willis Capital Markets & Advisory division, so it likely has a good view of the issuance pipeline as it develops over the coming weeks and months.

Talk of a strong pipeline will be welcome news to many investors seeking to deploy capital into the ILS and cat bond space. However, whether the pipeline actually results in deals marketed is never guaranteed, particularly now when traditional reinsurers are competing aggressively to maintain shares on reinsurance programs.

Willis Re aren’t the only company to have said that they expect a good amount of new cat bond issuance in the run up to the mid-year, other sources of Artemis have also expressed similar sentiment.

Stay tuned and we’ll bring you news and details of any new catastrophe bond transactions as they become available.

Read our article on Willis Re’s April renewals report: Reinsurance renewal prices fall by as much as 20% across sector.

Also read our article on the record Q1 2014 cat bond issuance: Record first-quarter as 2014 catastrophe bond issuance starts strongly.

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