Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

2011 catastrophe bond issuance could exceed $6 billion, says Willis


Willis Capital Markets and Advisory, the division of broker Willis that advises re/insurers and clients on capital markets products and issues, has published a review of the fourth quarter 2010 insurance-linked securities and catastrophe bond market. It’s the first time we can remember Willis publishing an update on ILS and cat bonds, so demonstrates their increasing efforts to raise their profile in the market.

The document (which you can download in PDF format here) provides a good overview of the transactions which came to market in the busy fourth quarter along with Willis’ insight into some of the deals. As such it makes for good reading and we suggest you take a look.

More interesting to us is the final section of the document which looks at the prospects for the insurance-linked securities and catastrophe bond market during 2011.

Willis says that 2011 could be a ‘banner year for quantity and variety of issuances in the ILS market’, highlighting that for certain peak risks cat bond capacity could be cheaper than the traditional reinsurance alternative. Willis also notes that pricing on other perils has become more attractive too (something that helped Q4 2010 finish so strongly).

They suggest that market growth during 2011 could resemble 2007 (historically the strongest year of catastrophe bond issuance) and they certainly expect it to be stronger than 2010.

As a result, Willis says they expect 2011 catastrophe bond issuance is likely to reach or exceed $6 billion. They expect much of the growth in the market to come from new sponsors and increased issuance from non-U.S. insurers. They also hint at more life ILS deals after the return to the market of some deals during 2010.

Finally Willis address the issue of a large catastrophe event occurring and how that may affect the catastrophe bond and ILS market. They say that if a large event occurs we would see an influx of capital moving into the ILS market attracted by the improved pricing conditions. Catastrophe bond issuance would likely accelerate, they say, as sponsors seek out capacity. They also believe that such a situation could also result in reinsurers seeking out additional capacity from the ILS and cat bond market and also an increased interest in sidecar vehicles from investors.

Their final comment is that 2011 should see further growth and innovation in the market, sentiments we entirely agree with. Given the levels of innovation within the market in 2010 we expect that to continue as market participants mature and uncover new ways to increase the value add available from catastrophe bonds.

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