Q2 2017 ILS market already ahead

“There has been a very significant upswing in issuance over the quarter, and it looks as though the quarter will push issuance levels above maturing bonds, resulting in overall market growth,” said Paul Schultz, CEO of Aon Securities.

“What we’ve seen in Q2 of this year is a pretty significant increase. Last year issuance for all of the second quarter was $800 million. This year, for the quarter to date it’s $4.3 billion. That’s a pretty remarkable change, year over year.

“What that means for the year-to-date figures, inclusive of issuance in the first quarter, is that cat bond issuance has increased to $6.5 billion, compared to $3 billion for the same period last year,” he added.

“Timing always has some impact. Last year there were some timing issues that caused lower than expected issuance levels, and we’re probably benefited from some timing issues this year that have led to higher issuance levels, all things considered.

“We’ve seen more steady renewals by clients this year compared to last year and some new issuance by a couple of clients. One large, contributing difference year-over-year has been the significant amount of upsizing—deals upsized due to investor demand.

“Only one deal was upsized in the second quarter of 2016. In Q2 of this year we’ve (so far) seen eight such deals.”

According to Schultz, the second quarter of the year tends to be one of seasonally high activity. In contrast, during the second quarter of 2016 there was seasonally low ILS issuance compared to recent years.

“The second quarter tends to be a larger issuance quarter as clients line up their capacity before the US hurricane season starts, so it’s more typical than not to have a heavier Q2. Last year was just atypical.

“What I would say about investors is that last year we observed a real concentration of effort from ILS managers to raise capital. We started to see the outcome from that effort flow into the market in the second half of 2016 and it has continued into the first half of 2017.”

Looking ahead to the second half of the year Schultz said there were some promising signs for the pipeline.

“Given the large number of transactions in the first half of the year, I think the second half of the year is probably now just starting to build.

“There’s been so much focus on the first six months that we haven’t really looked to the second half as much as we normally might in other years.

“I would say that pipeline will build—our expectation is that we will see a few deals come to market in Q3 2017 and then a more active Q4 again. It’s too early to have much definitive colour on the forward calendar, but it feels as though it’s beginning to build for the second half of the year,” he concluded.