PCS: ILS issuance hit record high in 2017


A flood of catastrophe bonds entering the insurance linked security (ILS) market helped to push it to a new record level of issuance, breaching $10 billion for the first time, according to a new report from PCS.

PCS’ Q4 2017 Catastrophe Bond Report points out that catastrophe bond issuance activity has set new records with every transaction since early 2017, when an ‘unprecedented’ second quarter pushed 2017’s totals above $10.5 billion, beating the previous record set in 2014 of $7.8 billion by more than 33 percent.

The report states that: “As a market, though, we’re becoming desensitized to these big numbers—even if new limit declined the two years following 2014. Of course, 2017 was so large as to become fundamentally different from prior years. With the $10 billion threshold finally pierced, it’s time for the global reinsurance and ILS community to stop contemplating what comes next and really put some effort into making ‘catastrophe bonds phase II’ a reality.”

The report also stated that the priorities being addressed by the market changed as the year went on. It claims that until the end of August 2017, there was no shortage of talk about innovation, market expansion, new lines of business, new regions, and other topics, with such thinking being driven by a protracted soft market. Without a major catastrophe, the reasoning routinely went, the market would need to find other forms of risk.

However, from September onwards with the arrival of hurricanes Harvey, Irma and Maria, the report says that “everything changed”.

According to the report, innovative ideas took a back seat to sorting out a series of significant catastrophe losses, adding that this process may go on for a while. “Three hurricanes and two wildfires were large enough from even preliminary estimates to be considered relevant to the global reinsurance market,” the report claims. “It looks like 2017 will be one of the largest catastrophe loss years in the nearly 70-year history of PCS. Because of this, new ideas get shelved while the core business of today is addressed.

“It would be prudent for our global community to remember the types of discussions we had in July and August, particularly around global specialty lines. And while we do need to work through the major events that occurred in the third and fourth quarters last year, we should try to maintain a balance that includes fuelling new solutions that bring original risk into the market. Sooner or later, the market will soften again, and if we don’t invest for that eventuality, the market will have no choice but to endure the slipping rates and looser terms that tend to prove problematic in the long run.”

PCS, Catastrophe Bond Report, ILS, Risk transfer, Global

More on this story

PCS to launch new terror solution

Bermuda Re