ILS Market Update: Capacity Greater than Ever

Outstanding capacity under catastrophe bonds is greater than ever, according to the latest  ILS Market Update  from Willis Towers Watson Securities. The first quarter of 2018 saw $3.1 billion of underwritten, widely distributed non-life insurance-linked securities (ILS) capacity issued through 12 catastrophe bonds, compared to $1.7 billion through 5 bonds in the same quarter of 2017. It marks the largest ever first-quarter issuance in the history of the non-life ILS market, and the third-highest quarter ever.

$26.6 billion of non-life capacity was outstanding at the end of the quarter, up $1.1 billion to a record high. Most were market-diversifying transactions, including bonds for first-time sponsors Chile, Colombia, and Peru, and by repeat Japanese cedents Zenkyoren, Mitsui Sumitomo Insurance Group, and Tokio Marine & Nichido Fire. As a result of this diversifying issuance, only 63 percent of outstanding capacity is exposed to US Wind, the lowest in the last 10 years.

William Dubinsky, managing director and head of ILS at Willis Towers Watson, said, "We expect the current trends in ILS growth to continue. Without a true surprise loss, like an ice-storm in Miami, end-investors will continue to allocate capacity to ILS. Yield increases under government bonds are expected to be neutral or maybe even slightly positive for issuance and asset growth, and even more importantly, we will continue to see a trend towards true syndication, reducing the power of large leading markets. All this will put the reinsurance market's traditional pricing cycle on life support."