ILS market on course as second quarter opens

“We’re at the beginning of an expected wave of new deals,” Paul Schultz, chief executive of Aon Securities, said.

“Around five or so major transactions have come to the market so far this year. Investor reception has been quite strong, and from a cedant’s perspective what we’ve seen has been priced well.”

Schultz said that the early signs were positive for the market, and he was also seeing signs of more new deals in the pipeline. He added that the market expected to see a total of $8 billion in cat bonds in 2017, a healthy increase on the $5.8 billion written the previous year, which was a very competitive market, and more in line with the $6.9 billion that was reported in 2015.

According to a report issued by Aon Securities in January the insurance-linked securities (ILS) sector was projected to see a bumper year ahead as a record number of catastrophe bonds will mature and most likely be renewed, with $6.4 billion coming off-risk. This would be a major boost for what was also expected to be a bullish year for new issuance.

So far this projection seems to be in line with what has been written on the market.

“It’s early days,” Schultz stressed, “but we have seen some quality sponsors in the market and a lot of deals have been upsized.”

He added that the pipeline of new deals was at the expected level, and that he expects interest in this area of the market to ratchet up “significantly” over the next six to eight months.

This increase in activity is a natural part of the market, as many participants will be looking at the approach of the 2017 US hurricane season and as a result will want to get ready in terms of coverage, either renewing old deals or negotiating new ones, especially in case the hurricane season is more intense than had been expected.

“The seasonal aspect of the market is always a factor,” Schultz said. “Some will buy coverage opportunistically, others will have planned for it. However, in terms of expectations the market is in line with where we thought it would be at this point in the year.”

The market will be watching the upcoming second quarter of the year with a great deal of interest given what happened in 2016, when lower levels of issuance in the second quarter meant that levels for the full year were never able to recover.

Despite this, Schultz reiterated, the market so far is currently in line with his expectations for the year.