Schultz: ILS market proved itself in 2017

Schultz said that Aon Securities’ view was that in 2017 the ILS market had met the task of being able to withstand the losses that came to the market and was able to trade forward in a very orderly way, and demonstrating that the market works as well as it did. The market therefore passed that a key test: of being able to withstand large losses, pay claims and move forward.

“We saw some issuance of cat bonds in the fourth quarter, following the events of the summer,” he said. “The five transactions that closed out the year meant that there was momentum in that fourth quarter that we expect to carry over into the early part of 2018 and set the tone for what we think is going to be another strong year of issuance.

“We’re fairly optimistic about the market’s prospects - we think that the pipelines are looking good in terms of new transactions and we think that investors will have ample capacity after they raise fresh capital in the wake of the events of 2017.”

Schultz said that as the losses started to come through the markets in the early part of the fourth quarter of 2017 it certainly took its toll on assets and the ability to trade forward. However, as far as Aon Securities was aware every manager was successful in raising fresh capital, and as a result the company thinks think that at some point there will be more capital than prior to the events of last year.

“I think that’s a reflection of firstly the interest in the asset class on the part of capital providers, and secondly the transparency that the investment managers have had with their clients, the investors, about the importance of being able to trade over two different trading cycles, and the importance of being able to bring fresh capital post-loss.

“The ILS market is increasingly relevant. If you do a simple comparison of the figures then there was $89 billion of alternative capital on June 30, 2017, compared to total reinsurance capital of $605 billion, so that roughly 15 percent of capital is being provided by the alternative market. Compare that back to the days of Katrina, Rita and Wilma, when alternative capital was around $10 billion and that shows that it’s much more relevant, much more significant than it used to be, with even though more losses that have at times flowed through the market.

“So that answered some of the questions that some observers had, which were about how the market would fare when it was exposed to large losses. I think that it’s passed that test and its ability to raise capital positions the market well for new opportunities as we go into 2018. So, one of the themes that we have at the moment is that post-HIM we think that the market is poised to start picking up growth again, in terms of growth of total assets. That had slowed a bit in recent years, but now we can expect to see larger growth opportunities again, given the recent performance and the ability to raise fresh capital.”