Relative value to drive catastrophe bond & liquid ILS issuance: WCMA

by Artemis on July 11, 2016

Despite the second-quarter of 2016 being a little slower for issuance of catastrophe bonds and other liquid insurance-linked securities (ILS), the relative value gap over private ILS or collateralised reinsurance deals will continue to drive increased issuance, according to WCMA.

Willis Capital Markets & Advisory (WCMA), the ILS and capital markets specialist unit of advisor, insurance and reinsurance broker Willis Towers Watson, discusses the relative value gap that has appeared between liquid ILS, such as catastrophe bonds, and private ILS deals, in its latest quarterly ILS market report.

Following a quieter second-quarter, in which WCMA only counted $1 billion of non-life catastrophe bond capacity issued across six transactions, the outstanding market contracted a little even on first-half of issuance of $2.8 billion (on WCMA’s numbers).

Bill Dubinsky, Head of Insurance-Linked Securities (ILS) at WCMA, commented; “Despite the strong Q1 2016 issuance, second-quarter take up has not been as fervent compared to previous years. However, sponsors continue to engage with ILS investors through various other products.”

Here WCMA is referring to private ILS and collateralised reinsurance arrangements, which continue to see market growth even in a time when issuance of full 144A catastrophe bonds has slowed a little, due to the highly competitive reinsurance market environment.

But WCMA believe that there is a gap opening, in terms of relative value, between the liquid ILS and cat bonds versus private ILS deals, reflecting investor appetite for the liquid securitised reinsurance investments.

“Decreased outstanding volume created tighter risk spreads in Q2 for this type of ILS and better relative value for ceding companies versus private deals. We expect this relative value gap to drive increased issuance of liquid ILSin response in the coming quarters,” Dubinsky explained.

With less outstanding catastrophe bond notes available, demand from investors will be increasingly focused on those fewer available issues, which will in turn drive demand for new issues and could encourage sponsors back to the cat bond market.

There is certainly a need for more cat bond issuance. Every ILS fund manager or end-investor we speak with is keen to acquire more risk in liquid form. As interest in ILS continues to grow, especially in catastrophe bonds as the area many fixed income style investors would like to access, we could see the appetite keeping cat bond backed reinsurance capacity very competitive in terms of price.

WCMA’s latest cat bond market report can be accessed here.


Artemis’ Q2 2016 Catastrophe Bond & ILS Market Report – A quiet quarter fails to keep up with investor demand

Q2 2016 Catastrophe Bond & ILS Market ReportWe’ve now published our Q2 2016 catastrophe bond & ILS market report.

This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the second-quarter of 2016, looking at the new risk capital issued and the composition of transactions completed during Q2 2016.

Q2 2016 issuance failed to hit $2 billion, with just $1.624 billion of new risk capital issued from 14 transactions. This is the first time since 2011 that Q2 issuance has failed to reach $2 billion.

Download your copy here.

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