Swiss Re Insurance-Linked Fund Management

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ILS market will “continue to grow to new heights” – Swiss Re


Following on from the record period of insurance-linked securities (ILS) activity through the first-half of this year, with a bumper volume of new catastrophe bond risk capital issued, Swiss Re Capital Markets expects that the ILS market will “continue to grow to new heights.”

Swiss Re logo and buildingThe ILS and catastrophe bond market now enters its typical summer lull, but after shattering nearly all the first-half records so far this year, the ILS and capital markets team at reinsurance firm Swiss Re believe that further growth of the ILS market is on the horizon.

Swiss Re is so impressed with ILS market activity in the first-half it notes in its latest market report that, “It’s difficult to decide where to start when heaping praise on the accomplishments achieved in the first six months of 2017.”

Having seen record monthly, quarterly and half-year issuance of new catastrophe bonds, as well as the largest average deal size and a new market record size, the frenetic activity in the ILS market through the first-half may herald a more active ILS market in the future.

Landmark levels of new issuance were soaked up by an eager and expanded investor base, which has helped to ensure transactions were executed at particularly keen pricing levels in the first-half of 2017.

ILS fund managers raised new funds to accomodate issuance, while also benefitting from cash being returned due to the record high levels of maturities as well, all of which helped to ensure a market where pressure remained on pricing and resulting in efficient coverage for sponsors who tapped into the capital markets.

Market conditions helped sponsors, “As they were able to dictate broader coverage, new perils and tighter pricing, all while growing their issuances,” Swiss Re explained.

Given the appetite seen for ILS and the fact that capital levels remain high in the market, with more investors still keen to access the asset class, it’s widely anticipated that we could see strong issuance through the back-end of the year as well.

Swiss Re Capital Markets agrees, explaining that more records could be ahead.

“We expect market conditions to remain conducive for new issuance, and for the market to continue to grow to new heights,” the firm explained.

Strong demand for investments in reinsurance risk, on the investor and ILS fund manager side, as well as strong demand for efficient reinsurance coverage at sponsors, should ensure that the market’s activity level remains high and that transactions continue to see innovative additions to the structure, in order to make coverage more effective.

“As the market grows and demand remains strong, new and innovative structural features should continue to drive sponsors to tap the additional capital market’s capacity alongside traditional programs to achieve the broadest possible coverage,” Swiss Re said.

With conditions looking so positive Swiss Re Capital Markets believes that further growth in outstanding catastrophe bonds and ILS is likely to be seen through the rest of the year, especially as maturities are relatively light in the second-half of the year.

“It would not take a huge leap of faith to predict further growth, which results in finishing the year in record territory for outstanding bonds,” the company forecast.

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