Swiss Re Insurance-Linked Fund Management

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Willis publishes Q3 2011 insurance-linked securities market report


Willis Capital Markets & Advisory (WCMA) have published their latest report looking at the insurance-linked securities and catastrophe bond market over the last quarter. The Q3 2011 report found that none of the cat bonds issued during the third quarter had any exposure to U.S. hurricane risk, so offering much needed diversification to the market, and between them brought an additional $676m of risk capital to the market.

The latest quarterly ILS market report from re/insurance broker Willis, titled ‘New Non-Hurricane Issues, as 2011 Hurricane Threat Recedes’, finds that despite the much needed diversification the ILS market remains top-heavy with U.S. hurricane risks. Currently Willis put 67% of ILS capital as covering U.S. hurricane events, down slightly from 71% during the previous quarter.

Willis note that we’re likely to see a trend for non-U.S. hurricane issuance during the first six months of 2012 as there is $1.24 billion of European windstorm exposed cat bonds due to mature during that period. Much of this capital is likely to return to the market during Q2 2012 (after the European windstorm season finishes).

WCMA are positive that we’ll see a robust fourth quarter of catastrophe bond issuance followed by a busy first quarter of 2012 as the reinsurance market continues to recover from the heavy losses it has seen this year. Their report highlights certain market dynamics which could point to increased issuance going forwards, including pent up demand from prior quarters, tightening spreads particularly for perils other that U.S. hurricane and substantial maturities due during the first half of 2012.

Bill Dubinsky, Head of ILS at WCMA, said, “As is typical during the lead up to the peak of U.S. hurricane season, we saw sponsors focus on deals with other perils. Looking ahead, most of the signs point to a busy year end and first quarter for cat bond issuance and related investor activity.”

Some other highlights from the report include:

  • Q3 2011 issuance was up $196m over the previous year.
  • The first three quarters of 2011 has seen $2.28 billion in new issuance compared to $2.98 billion during the same period of 2010. Not bad considering the losses faced and the uncertainty generated by catastrophe model changes.
  • The first corporate cat bond since 2007 was issued during Q3 2011, the EDF sponsored Pylon II Capital cat bond. Willis say that we could see an increasing trend for corporate cat bond issuance, especially with the increasing popularity of private cat bond deals.

We’ll bring you some more highlights from the report over the next few days but for now you can find a full copy of the report via the Willis website here (in PDF format).

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