Swiss Re Insurance-Linked Fund Management

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2017 could be the year of the cat bond, says Swiss Re’s Klugman


Swiss Re Capital Markets remains hopeful that 2017 will be the year of the catastrophe bond as large, global sponsors return from a market hiatus and the current pricing environment combines with true complimentary capital, says Judy Klugman.

The global catastrophe bond market surprised some in the industry during 2016 as “phenomenal issuance” with “fairly remarkable” spread levels were evident regardless of an issuance lull at the mid-year, and despite some of the larger, more notable cat bond sponsors being absent from the space.

This is according to Judy Klugman, Global Co-Head of ILS at Swiss Re Capital Markets, who, speaking with AMBestTV at the 2017 Artemis ILS New York conference held earlier this year, expects the market to flourish in the coming months on the back of an impressive and somewhat surprising 2016.

“We wound up in the last quarter just having phenomenal issuance and spread levels that were fairly remarkable, so I think that we are all surprised in the market to see how well it wound up at the end of the day.

“When we look at 2017 and we look at where the current pricing environment is and the benefit of having true complimentary capacity, we remain extremely hopeful that we’re going to see 2017 really be the year of the cat bond, and we’re hopeful that those global sponsors that maybe have sat out the past year or two, will come back in this year,” said Klugman.

Klugman explained that typically, growth in the global catastrophe bond market, from the sponsors’ side, is characterised by huge players such as AIG and Travelers, of which there was a notable lack of in 2016.

Instead, a number of mid-tier companies and smaller, more entrepreneurial-type Florida companies, for example, took advantage of the marketplace and drove a shift in the sponsor composition.

With the potential for smaller companies, mid-tier entities and also government entities returning to the market in 2017 or entering the space for the first time, alongside the expectation that the large global sponsors will return, Klugman feels that 2017 could be a significant year for the cat bond market.

As shown by the Artemis Deal Directory issuance in 2017, so far, has been fairly solid, and could near or reach $2 billion by the end of the first-quarter. Reports in the market suggests there’s a healthy issuance pipeline for 2017, and if the market is to achieve outright growth again this will certainly be required, thanks to the high level of scheduled maturities in the coming months, which includes the huge $1.5 billion Everglades Re Ltd. (Series 2014-1) deal, the largest ever cat bond.

As well as the expected return of large global sponsors, Klugman suggested that the UK’s attempt to establish itself as a global ILS hub with the proposal of new regulations and legislation that facilitates ILS utilisation could also drive new sponsors and risks to the market.

“At the end of the day, what we’re most optimistic is that this will bring in new types of sponsors to the market, whether it’s sovereigns, whether the UK government itself might use this as a spring board and be the first one to utilise this legislation, we remain very optimistic for it,” said Klugman.

It will be very interesting to see just how high catastrophe bond issuance will be in 2017, as the high level of maturities suggests that a close to record level of new deal issuance will be required for the market to continue down its impressive growth path.

But it’s certainly promising for the market to have ILS sector leaders and experts, such as Klugman, suggest that this year could well be the year of the cat bond.

View the full interview with Judy Klugman from Swiss Re Capital Markets below:

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