ILS market looks forward to 2017

“While 2016 started well, with a first quarter of record issuance, the second quarter was more quiet, before a recovery in the third and fourth quarters,” said Paul Schultz, CEO of Aon Securities.

Figures supplied by Aon show that in 2015 actual bond issuance came to $6.9 billion and that 2016’s projected bond issuance was $6.04 billion, something of a downturn after several years of record insurance-linked securities (ILS) issuance.

“What we’ve really seen, starting in the third quarter of 2016 and now certainly manifesting more in the fourth quarter, is a repricing of the capital market product, which is now much more competitive compared to other alternatives than earlier in the year,” Schultz explained.

“We’ve seen the pipeline for 2017 building quite rapidly. There’s been a little bit of refocus in terms of pricing by capital market investors and we are seeing greater issuance levels. The large transaction currently in the market will help set the tone for 2017.”

Schultz added that in 2017 a large number of catastrophe bonds will mature and as a result there will be a good amount of capital to put back into the market.

The combination of the current pricing environment and the recycling of significant capital should make 2017 a good year for the ILS market.

“One of the clear themes in 2016 was that some maturing bonds did not renew, with clients either retaining the exposure net or securing more traditional reinsurance coverage,” he said.

“I expect to see the similar themes in 2017, although the outcomes will be much more skewed towards higher bond renewals and issuance, with a much smaller percentage of limit non-renewing or moving between markets.”

Schultz added that 2016 was also a year that demonstrated a greater awareness of capital alternatives on the part of clients, who have become more sophisticated over the years, gaining greater comfort around executing in different markets.