Swiss Re Insurance-Linked Fund Management

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ILS investors endured the onslaught of 2017 catastrophes: Swiss Re


Investors in insurance-linked securities (ILS) and catastrophe bonds “endured the onslaught” of the major catastrophe losses of 2017, “displaying immense fortitude and demonstrating the discipline and importance of alternative capital to the re/insurance market,” according to Swiss Re.

The reinsurance firms ILS focused unit, Swiss Re Capital Markets, discussed the resilience of ILS investors and the ILS business model in its latest quarterly cat bond market report.

The reinsurer noted that the second-half of 2017 “brought significant stress to the market with a number of large catastrophic events” but investors and ILS funds demonstrated their ability to stay the course, deal with their claims and recapitalise to trade forwards, Swiss Re explains.

The impact of the “unrelenting barrage of catastrophic events” led to pricing volatility and large price swings particularly on aggregate cat bonds, Swiss Re said, resulting in a halt to the softening trend.

The reinsurer said, “The anticipated losses arising from these events served to halt the years’ long spread-tightening trend that seemed to have no floor.”

Given the extent of the losses experienced in 2017 and their impact on ILS and collateralized reinsurance markets some had expected ILS investors to either back-off from investments in catastrophe insurance risks, or to demand large price increases.

But “the ILS market in 2017 proved to be remarkably resilient” Swiss Re Capital Markets notes, explaining that ILS markets have positioned themselves ready to continue trading in 2018.

“Investors endured the onslaught, all the while displaying immense fortitude and demonstrating the discipline and importance of alternative capital to the re/insurance market,” the company commented in its report.

“Some had forecast a capitulation of alternative capital and a return to pricing of five years prior,” explained Swiss Re. “However, the investor community was largely able to shore up its capital base and displayed a readiness to reinvest in upcoming transactions, albeit at improved terms.”

Swiss Re Capital Markets (SRCM) recorded $10.53 billion of issuance for 2017 in its report, a record level, although the first-half drove the bulk of this at $8.4 billion.

As a result the outstanding market grew to a new high to a record $27 billion, the firm notes, but added that this could dip due to a high level of maturities in the first-half of 2018.

Looking ahead, the reinsurer said it, “Would not be surprised to see some continued price fluctuation, but we expect to see a market ripe for new issuance and many sponsors returning to utilize the capacity provided by the ILS market.”

“A robust new issue pipeline and significant pools of investor capital provide reason for great optimism,” the company suggested, which bodes well for the rest of this year and is aligned with the commentary of other market facilitators.

Swiss Re Capital Markets latest report, which provides insights on the ILS and cat market at year-end 2017, can be downloaded in full here.

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