Despite a potential slowing of catastrophe bond issuance from the reinsurer side, there’s still a very good chance that 2021 issuance will break the record set last year, according to Cory Anger, Managing Director of GC Securities, the specialist ILS and capital markets unit of Guy Carpenter.
Across traditional 144A cat bonds, private cat bond lite transactions and mortgage deals, annual cat bond and ILS issuance reached a record $16.4 billion in 2020, of which more than $11 billion covered property catastrophe risks, which is also a record.
On the back of a very impressive year, first quarter 2021 cat bond and ILS issuance maintained the momentum, and for the third time in the past four years, Q1 issuance exceeded $4 billion.
The second quarter of this year was even more impressive as for the first time in the market’s history, and as shown by the Artemis Deal Directory, quarterly issuance surpassed $8 billion. Of this, a huge $6 billion covered catastrophe risks.
But perhaps even more impressive is the fact that when combined with the strong level of issuance seen in Q1, Q2 issuance took H1 2021 issuance to a massive $13.2 billion, of which $8.5 billion covers catastrophe risk, which is a record at the halfway stage of the year.
Against this backdrop, Anger of GC Securities, during an interview as part of our recently held ILS Asia 2021 event, held in association with our headline sponsor AM RE Syndicate Inc., explored the potential for issuance levels to once again reach new heights in the months ahead.
“I don’t actually think it’s dependent on the hurricane season. We’ve got a lot of capital that can naturally mature that makes it interesting. And, so, I think that that will keep the market activity going by the fact of just how well things have been pricing. And with that natural capital release, I think, you’re going to see activity continue to be strong,” said Anger.
Over the past 18 months or so, an increasing number of reinsurance companies, which hadn’t previously utilised the ILS market, accessed the capital markets for their retrocessional reinsurance protection.
Highlighting this trend, Anger explained that while that’s clearly been a greater contribution to total issuance, the fact these reinsurers have secured multi-year protection means that from the reinsurance issuer side, we may not see as much of a contribution.
“So, it’ll be a question of where that issuance comes from,” said Anger.
“But, I think the discussions that we have with sponsors that maybe haven’t utilised the market in a long time, and an example of that was Liberty Mutual having done two ILS transactions in the last year, and had taken a pause from the market for a while. And then also the new sponsors that are coming. I think we have a very good shot of exceeding total issuance from last year,” she continued.
As at the end of June 2021, year-to-date cat bond and ILS issuance totalled just under $13.2 billion, which is significantly higher than the $8.8 billion seen during the same period in 2020 and also the previous record set in 2017, of roughly $9.8 billion.
While there’s bee evidence of rates levelling off in the cat bond market over recent quarters, market participants and experts have noted that ILS returns still remain attractive. And, with investor interest in the class persisting, it seems there’s a good chance for another record-breaking year for the cat bond and ILS space in 2021.
As well as the on-demand playback, we will be archiving every session from our online and virtual ILS Asia 2021 conference over on our YouTube Channel in the coming weeks and audio versions will also be uploaded to our podcast which you can subscribe to here.
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