The fifth in our series of articles featuring leading figures in insurance-linked securities (ILS) and reinsurance on the market as we move into 2016 features Bill Dubinsky, Head of ILS at Willis Capital Markets & Advisory.
We asked for participants thoughts or predictions on the prospects for the ILS market, catastrophe bonds, collateralized reinsurance and reinsurance or catastrophe risks as an asset class in 2016.
Bill Dubinsky leads the insurance-linked securities (ILS) practice at Willis Capital Markets & Advisory, the capital markets, ILS and M&A focused unit of global insurance and reinsurance brokerage Willis Group.
Bill answered some specific questions surrounding the ILS market in 2016.
What can investors expect to see in 2016?
Investors will likely see even more diverse opportunities than in prior years. Ceding companies are accessing ILS capital for a broader range of risks than in the past and are doing so in many different forms (not just cat bonds). For example, 2015 saw an increase in life, accident & health cessions and we expect this trend to continue as more capital has become accessible to these risks and other areas outside property cat.
In addition, some long time ceding companies are themselves shifting strategies and some may even deemphasize ILS to the extent they continue to benefit from increasingly soft premium rates as traditional reinsurers flush with capital compete to maintain their top line and market share.
ILS funds themselves should continue to see increased competition for investment mandates both from other existing investors as well as new entrants. Some end investors by which I mean pension funds, endowments and others which often have backed ILS funds in the past have migrated in part towards direct investments where the ILS structures offer significant alignment of interest.
WCMA figures, which differ slightly from Artemis figures, showed that nonlife cat bond issuance declined in 2015. Does that mean that the market is in decline?
Not at all. By our calculations, total nonlife ILS capital is around $70 billion at year end, which is up quite significantly from year end 2014. Net new capital continues to flow into the space albeit at a slower rate than recent years. The growth may continue to slow or even reverse if the market softening furthers due to the absence of loss activity and reinsurer pricing behaviour. Note that the soft market is much more of a threat to the ILS market than increased risk spreads on other alternative investments (e.g., gapping out of high yield spreads).
Cat bond issuance itself was essentially flat year-on-year if you adjust for the one-time impact of the $1.5 billion 2014 Everglades Re deal. The amount outstanding was also flat at just under $23 billion (nonlife only). Incorporating the steady growth in quota share arrangements (sidecars and otherwise) as well as so called cat bond light deals, we definitely saw growth in 2015.
Now that you mention cat bond light deals, where do you see that heading in 2016?
We expect steady experimentation and growth. ILS is not a one size fits all market in general and at Willis we especially believe this is true with respect to cat bond light deals. Our goal is to find what works best for each ceding company. Sometimes this means that a relatively standardized approach such as what we can provide via our Resilience Re platform works but other times a more bespoke approach may make sense. Just to be clear, cat bond light deals are really expanding the market much more than they cannibalize either collateralized re or fully distributed cat bonds.
Our thanks to Bill Dubinsky for his time.
Like to be featured in an interview on Artemis or have some thoughts on the market for 2016? Contact us to discuss.
Artemis’ Q4 2015 Catastrophe Bond & ILS Market Report – Outright market growth continues
We’ve now published our Q4 2015 catastrophe bond & ILS market report.
This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the fourth-quarter of 2015, looking at the $1.525 billion of new risk capital issued and the composition of the cat bond & ILS transactions completed during Q4 2015. The report also includes a review of the full year 2015 issuance and commentary from co-editor GC Securities.