The evolution of the insurance-linked securities (ILS) space has seen its sponsors and investors reach an improved level of maturity; understanding that capital markets capacity is available throughout the year and not just around key renewals, according to GC Securities Cory Anger.
Speaking with A.M. Best at the 2016 SIFMA IRLS event in New York, Cory Anger, Global Head of ILS Structuring at GC Securities a division of reinsurance broker Guy Carpenter, explained that while the catastrophe bond and ILS space during the fourth quarter of 2015 was less active than previous years, this could be down to increased maturity of market sponsors.
“There were deals that were done in January that had the potential of coming in December. I really think sponsors have got more mature and respective of the fact that the capital market is open not just around key renewal dates, but before and after they get new funds in.
“Those sponsors that are looking for potentially better execution, if they have the flexibility, they may wait until the first part of the following year in order to execute that transaction,” explained Anger.
Artemis has noted the increased maturity, sophistication, and acceptance of both the ILS asset class and its investor/sponsor base numerous times in recent months, which has been underlined by its continued expansion across the insurance and reinsurance landscape.
The catastrophe bond and ILS space has started the year well, with first-quarter 2016 issuance set to reach $1.915 billion by the end of March, according to data from the Artemis Deal Directory.
This actually makes it the second most active Q1 in the market’s history, as recorded by Artemis.
Anger also highlighted the increasingly active first-quarter issuance levels witnessed in recent years, which, is again in part due to improved market maturity and acceptance.
“We look at first-quarter activity as actually having increased over time, given the maturation and acceptance by the cedant community of accessing the market at different times,” said Anger.
Anger’s comments suggest heightened sophistication and maturation of both the investor and sponsor-base of the ILS sector and, the fact that Q1 issuance has increased in recent years owing to the acceptance among players that the capital markets are accessible all year round, also underlines the increased discipline of the catastrophe bond and ILS space.
Sponsors being able to hold back on issuance until the following quarter, in order to improve deal efficiency and execute the transaction under more desirable terms, for example, shows that sponsors are aware that capital markets investors are willing and able to take on risk throughout the year, and not just at key renewal dates.
This will likely serve to further grow the acceptance and ultimately utilisation of the broad range of ILS structures that are available in the global risk transfer industry, as insurers, reinsurers, and increasingly non-insurance entities are able to access the expanding ILS capital-base outside of the traditional reinsurance renewal cycle to serve their risk transfer needs.
Looking forward into the coming months Anger feels that owing to where investors are pricing risk ILS growth in 2016 will be consistent with last year, underlined by the continued, steady expansion and acceptance of the sector.
It’s unlikely any major changes or significant growth of the ILS space will take place in the coming months, absent a substantial loss or losses, or any drastic changes to regulation, advised Anger.