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ILS solutions ebb & flow, but overall market growth ahead: Bill Dubinsky


The evolution of the ILS market continues to drive the ebb and flow of catastrophe bond and collateralised reinsurance issuance. And with investors now able to access the market and deploy capital via a broader range of solutions, it’s an exciting time for the industry, according to Bill Dubinsky.

Head of ILS at Willis Capital Markets & Advisory (WCMA), Bill Dubinsky in an interview with A.M. BestTV, highlighted the increased ability among investors existing and new to access the diversifying asset class, and noted that while insurance-linked securities (ILS) sub-sectors might contract, overall the market is still “growing” and “vibrant.”

In recent years the catastrophe bond market has witnessed impressive growth. A record volume of issuance in the first-quarter of this year came on the heels of an impressive 2015, which, despite witnessing less issuance than the previous year, was still strong enough to see the outstanding cat bond and ILS space record outright growth of $624 million, according to the Artemis Deal Directory.

The second-quarter of 2016 saw issuance levels decline and the outstanding market size shrink from the record-breaking level seen at the end of Q1, but this certainly doesn’t suggest a retraction in overall ILS market size, explains Dubinsky.

“We are talking about a much broader market where the investors are deploying their capital into lots of different instruments… So we are seeing more choices.

“I’m certainly expecting some rebound to where we were as far as volume and number of deals, to sort of similar to the last couple of years,” said Dubinsky, when asked if the decline in cat bond issuance in terms of dollar volume was a concern.

“But it could go up pretty dramatically or down, without affecting the overall amount of capital being deployed in the space. It’s just coming through some of these other products,” continued Dubinsky.

Collateralised reinsurance is one of, if not the fastest growing sub-sector of the ILS space, and combined with catastrophe bonds makes up the large majority of current ILS issuance volumes.

Capital markets investors that participate in ILS are increasingly deploying capital in collateralised reinsurance placements and sidecars, as well as keeping a healthy appetite for catastrophe bonds.

So while a decline in new cat bond issuance and maturities of existing deals that failed to be renewed, for example, will likely result in the shrinking of the outstanding cat bond industry, the rise of collateralised reinsurance and the willingness of investors to access the broadening asset class means it’s unlikely the overall ILS market will shrink as a result.

Investor and sponsor appetite for ILS business remains strong, and Dubinsky explained “in the aggregate, we’ve got more (investors) coming in than going out at the moment, even in the softening market.”

This is an important point, and highlights the acceptance and understanding investors in the ILS space have of the asset class, seeking to benefit from its diversifying and largely uncorrelated returns at times of wider financial market turmoil, and a softening re/insurance environment.

“We are seeing a lot of sponsors who are very interested, and always see that. I wouldn’t say particularly for the most broadly distributed class of deals that we are seeing a dramatic increase, but technology is evolving in a way that smaller sponsors who have more measured needs are finding ways to access the market, and that’s exciting,” said Dubinsky.

ILS investors and sponsors alike continue to show sophistication and a willingness to participate in catastrophe-exposed insurance and reinsurance linked business, despite lower returns than seen previously and regardless of the challenging re/insurance landscape.

The ebb and flow of catastrophe bonds and collateralised reinsurance is typical of an industry that consists of cyclical and seasonal trends. So it’s important to remember that just because it’s been a quieter period for catastrophe bond issuance it doesn’t mean the ILS marketplace is declining or losing its appeal.

Investors and sponsors now demand to know more about the underlying exposure of their ILS participation, which in turn is resulting in a more sophisticated and mature industry where issuance has failed to meet demand, in more recent times.

Looking to the future, Dubinsky told A.M. BestTV that what happens is “really going to depend on the best way to deploy that larger amount of capital.”

“And we need to continue to work collectively as a market to evolve the structures to meet those risks and match them with the new investors,” said Dubinsky.

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