Re/insurer interest leads to $70bn ILS capital in 2015

25-01-2016

Non-life insurance-linked securities (ILS) capital hit a new high in 2015 due to re/insurer interest, according to a new report by global advisory, broking and solutions company, Willis Towers Watson.

This confidence was also due to investor confidence continuing to grow, according to the broker in its ILS market update, and led to new products and perils being introduced to the market.

Total non-life ILS capital reached $70 billion at year-end 2015 as net new capital continued to enter the market, according to the data. This exceeded the record $65 billion level at year-end 2014.

ILS products such as sidecars, industry loss warranties and collateralised reinsurance showed considerable growth during the year. Last year also saw the continuation of the gradual move towards a broader array of risks transferred, with increasing interest beyond natural catastrophe perils to life, accident & health and casualty risks, according to the report.

Non-life catastrophe bond issuance on the other hand, which has seen continued year-on-year growth since 2011, was down to $6.2 billion for the full year, compared to the record $8 billion level issued during 2014. The report concluded this is mainly due to one-off factors such as multi-year deal inception dates; the drop does not signify a decline in appetite for such transactions. In fact, the number of deals in 2015 increased year-on-year, said Willis Towers Watson.

Bill Dubinsky, head of ILS at Willis Capital Markets & Advisory (WCMA) said: “Looking at the headline catastrophe bond figure, a decline in issuance appears to be the case. However, this general picture fails to account for the huge $1.5 billion transaction completed in 2014 - Citizens’ Everglades Re - which skews any prior year comparison.

“The number of deals in 2015, and transactions such as Azzurro Re, demonstrate that ILS is becoming a core component of many re/insurers’ risk transfer strategies and investor appetite remains strong. We therefore expect continued growth in ILS assets under management in 2016, including growth in catastrophe bonds.”

Dubinsky also said that further expansion into new products and perils will require continued innovation and investment by all market participants.

“Investors are showing pricing discipline in the current soft market, yet there remains clear appetite to deploy capital across a broader array of risks and products as investors continue to become more comfortable with this maturing asset class, as long as investment standards are met,” he added.

“Overall, despite the soft market, the ILS market is healthy and of keen interest to institutional investors, insurers and reinsurers, and increasingly to corporates and governments as well.”

Willis Towers Watson, Bill Dubinsky, North America, Europe

Bermuda Re