ILS pipeline breaks 2017 expectations

2017 has seen far more than the anticipated level of insurance linked securities business – and the year isn’t even over yet, Paul Schultz, CEO of Aon Securities told Intelligent ILS.

“The most notable happening in the ILS sector in the second quarter of 2017 was simply the sheer amount of catastrophe bond issuance - $6.4 billion, which, when combined with the issuance from the first quarter of the year, set a new record for annual issuance, meaning that the total for those six months was higher than any calendar year period on record,” Schultz points out.

Schultz said that this high level of activity was driven by three things; firstly, there were bonds that were maturing, of which a good percentage renewed. And then on top of that the market saw further growth with new sponsors – there were a total of three new sponsors in the second quarter. And finally, there was a trend towards the significant upsizing of the issuance amount.

Second quarter offerings

In the second quarter the market saw also saw two large transactions, one worth $1.25 billion for Everest Re, and the second being the $925 million issuance for California Earthquake Authority – its largest offering to date.

“At the start of 2017, we estimated a total of about $8 billion in catastrophe bond issuance for the market for the full year,” explained Schultz. “We exceeded that estimate by the end of the first half of the year, so we’ll obviously be revising our estimate upwards, and we expect to see a continuation of the themes and trends we saw at the start of the year, but a little more aggressively than we might have estimated just a few months ago.”

Schultz added that the middle of the year tends to be a little bit slower than the earlier months, with the market seeing just two deals close in July that were launched in June, and no market activity in August, but according to Schultz that is a fairly standard level of activity based on historical trends.

“However, in terms of the pipeline [of ILS issuance], it is building for the second half of the year. It was understandably fairly well fulfilled by the elevated activity in the first half of 2017, and now what we have seen is a series of much more pressing conversations about the [ILS] deals for the fourth quarter. So I would categorise the pipeline as clearly building, and we would expect it to build further in the coming weeks, as clients firm up their reinsurance-buying strategies towards the close of the year and 2018 beyond.”