ILS issuance contracted in 2016 for the second consecutive year

Insurance-linked securities’ (ILS) issuance contracted for a second consecutive year in 2016, according to the latest Bermuda Insurance-Linked Securities (ILS) Market Report.

ILS issuance fell 10.9 percent to $7.0 billion compared to $7.9 billion in 2015. During the period there was also a decrease in the number of deals completed. There were 38 transactions in 2016 with an average deal size of $185.5 million. This compares to $164.7 million in 2015.

In the fourth quarter of 2016, global insurance-linked securities issuance volume increased 34.3 percent compared to the same period in 2015. There were six new bonds issued totalling $2.1 billion during the quarter. This compares to seven deals or $1.6 billion in the fourth quarter of 2015.

In the fourth quarter of 2016, two ILS deals matured with a notional value of $600.0 million. The net issuance of bonds during the quarter therefore increased the total stock of outstanding capacity to $26.9 billion, representing an increase of 2.4 percent year-over-year.

The ILS market remains small relative to traditional re/insurance business. The $26.9 billion of risk covered by ILS represents 4.5 percent of global reinsurer capital which is estimated to be $595.0 billion.

Since Bermuda entered the market in 2009, 263 ILS bonds have been issued. There are currently 121 (84 Bermuda deals) outstanding bonds that have not matured. Bermuda maintained its position as the leading jurisdiction in the ILS industry over the fourth quarter of 2016, accounting for 71.1 percent ($19.2 of $26.9 billion) of the outstanding volume in the market. Other countries with significant insurance securitisation activity in this area include the Cayman Islands and Ireland which represent 16.6 percent and 10.1 percent, respectively.

Indemnity triggers continue to account for over half of the outstanding volume of ILS deals. ILS deals with an indemnity trigger represent 61.6 percent ($16.6 billion of $29.6 billion) of total outstanding volume of the ILS market. This is followed by the industry loss index trigger type which accounts for 25.7 percent of the outstanding volume.

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