ILS market could see a bumper 2017, claims Schultz

This is despite the fact that ILS issuance for 2016 as a whole was down on the total amount of issuance for 2015, although it did see a rebound in the last half of the year when compared to the rather quiet first half.

“The third and fourth quarters of 2016, which saw some large transactions, set up the end of the year and in a sense also set upcreated momentum that will be carried into 2017.  in a positive way, in terms of investorInvestors have demonstrated a renewed appetite for new bonds and for the way that they’reand that is evident in the both the pricing and capacity being offered to the market those bonds,” Schultz told Intelligent ILS.

“I think that we’ve now seen a price shift, where I think thatin which the capital markets are slightly more competitive than other capacities at the moment and I think that we will see that clients are receptive to that messaging.

“All things being equal we would expect 2017 to see a significant rebound from 2016 and be one of the largest years ever.”

The third and fourth quarters saw large catastrophe bonds issued on the market place, including Nakama Re (worth $700 million) in the third quarter and then Galilei Re ($1.275 billion in total). The latter was so large that it was placed in two groups of instalments, one worth totalling $750 million in the fourth quarter of 2016 and one totallingworth $525 million in January 2017.

In addition Aon pointed out that the California Earthquake Authority came to market for the third year in a row under its Ursa Re program, seeking coverage for its California earthquake exposure on an annual aggregate indemnity basis. The Series 2016-1 notestransaction upsized from an initial target of $300 million to reach $500 million and replace the expiring $400 million Series 2014-1 issuance.

According to Aon Securities looking ahead to the first half of 2017 a record amount of catastrophe bonds will mature, with $6.4 billion coming off-risk. Given the positive market response already witnessed in late 2016, Aon expects investors to reinvest available capital and continue to support large competitive alternative reinsurance transactions.

As more capital continues to come off-risk, the momentum established by Nakama Re and Galilei Re is expected to continue in 2017. In the context of the macroeconomic environment, we see investors finding continued value in the alternative ILS asset class given the diversification benefit, and expect continued sector growth regardless of bull or bearish equity markets.In the context of the macroeconomic environment, Aon expects to see investors finding continued value in the alternative ILS asset class given the diversification benefit, and expect continued sector growth regardless of bull or bearish equity markets. Aon Securities’ preliminary view for 2017 primary catastrophe bond issuance is $8 billion.

“The trend over the last couple of years has been for investors to investing more in collateralised reinsurance and not just inversus cat bonds,” said Schultz. “I think that we’re at a point now where cat bonds are going to be more interesting to investors on a relative basis for several reasons.” Schultz stressed that it is still early in the year, but that as things now stand the pipeline of oncoming ILS bonds looks quite full – it just depends on what happens as time goes on.