Record year of $9Bn of ILS and catastrophe bonds still possible: Willis

by Artemis on October 16, 2014

Despite a slow third-quarter Willis Capital Markets & Advisory still expects that 2014 issuance of new catastrophe bonds and insurance-linked securities (ILS) can break the previous record set in 2007, with as much as $9 billion possible.

This tallies nicely with the forecast from competitors Aon Benfield Securities, whose CEO said that he expects to see between $2.5 billion to $3 billion of additional cat bond and ILS issuance during the fourth quarter. The outlook for investors seeking access to catastrophe and reinsurance risks through securitization is looking bright.

By our reckoning, with $6.633 billion recorded already in the Artemis Deal Directory, just $2.4 billion of additional issuance would see $9 billion hit and it would only take $1.6 billion for the 2007 record to be beaten.

Willis Capital Markets & Advisory (WCMA) has published its Q3 2014 catastrophe bond and ILS market report today. Titled “No Surprises”, the report takes a look at the one deal it recorded in the third-quarter, looks at industry trends and discusses the remainder of the years prospects for new issuance.

WCMA are as bullish as ABS on the prospects for Q4, which bodes well for investors in the ILS space who are crying out for more opportunities to allocate capital to new cat bond deals. With these two key participants in the ILS issuance process both calling for a record year, it is to be hoped that the pipeline lives up to expectations.

On WCMA’s numbers just $1.2 billion of additional issuance is required to break the record they saw in 2007, remember they do not cover all the deals we have in our Deal Directory as it is natural catastrophe, 144A cat bonds only, hence their lower figures. So WCMA says it feels that a record is quite likely, which will set another high point for the ILS market.

Tony Ursano, Chief Executive Officer, WCMA, commented; “Q3 followed a robust issuance season with new capital having already been deployed. It will only take about $1.2 billion more in 2014 to break 2007’s non-life ILS issuance record, so we believe this is incredibly likely.”

Bill Dubinsky, Head of ILS at WCMA, added; “Alternative capacity is becoming an integral component of sponsors’ risk transfer strategies, and ILS is being fully integrated into reinsurance purchase decisions. A quiet Q3 was not surprising. 2014 is still on track to be a record breaking year and we maintain our prediction of a final tally between $8 and $9 billion of non-life ILS issuance.”

“But the actual number is not the key point here. More interesting is the broader participation of investors in sidecars, cat bonds, and collateralized reinsurance, which continues to grow.”

WCMA’s report discusses whether investors will flee if yields in traditional fixed income assets rise. They believe that any capital flight will be minimal, likely constrained to the opportunistic types of investors, rather than the longer-term pension funds.

“Undoubtedly, some opportunistic managers will chase higher yields, but we expect this to be the exception rather than the rule for yield swings outside a crisis. This is because the relative importance of long term ILS commitments by pensions should mute the impact of any decline in relative value,” the report explains.

Looking ahead, WCMA ponders whether we will see a new consensus around some riskier transactions in Q4 2014 and Q1 2015. This would be welcomed as with yields down on the less risky late 2013 and 2014 issuance so far, a number of higher risk cat bonds with corresponding higher coupons would be welcomed by the investor base.

“If the trend continues and the deal mix remains diverse, it suggests ILS has broader potential application than many have thought and portends well for further market growth,” WCMA says in the report, suggesting it feels that further expansion of the market remains possible as long as issuance supports investors needs in terms of diversity and yields.

Finally, after a slow third-quarter, investors seem to be approaching the fourth-quarter with optimism, says WCMA, adding that with considerable maturities coming up in the first-quarter of 2015 investors hope that “Good things may arrive soon in the cat bond space.”

Investors will be pleased to hear that the structuring teams are bullish about fourth-quarter catastrophe bond issuance. With investor appetite seemingly as strong as ever for new ILS and cat bond paper, anything the market can produce is likely to be snapped up resulting in more upsizing of deals and continued competitive pricing.

You can find the full report from WCMA via its website here.


Artemis’ Q3 2014 Catastrophe Bond & ILS Market Report – A lazy summer for ILS

Artemis Q3 2014 Catastrophe Bond & ILS Market Report - A lazy summer for ILSWe’ve now published our Q3 2014 catastrophe bond & ILS market report.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the third-quarter of 2014, looking at the new risk capital issued and the composition of the cat bond & ILS transactions completed during Q3 2014.

Download your copy here.

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