ILS market strengthens position

“We’ve seen a pick-up in activity since the third quarter,” said Paul Schultz, chief executive officer at Aon Securities.

“As we approach December there’s been something of a flurry of activity and we do anticipate more by the end of 2016.”

This means that the insurance-linked securities (ILS) market is ending the year on a more level footing than might have been thought, rebounding after what was a very difficult second quarter of the year, according to Schultz.

“The pipeline for Q4 is good and as we look forward to we’re anticipating a fairly large pipeline as well, so it seems we might have turned the corner in terms of the low issuance of earlier this year,” he said.

“It seems that we are resuming the natural trend of issuance.

“I think that 2016 will be seen as a transition year. For the years before 2016 we had pretty strong volumes and a lot of issuance—a high water mark. 2016 will be viewed as a kind of plateau year—certainly not growth, but hopefully a plateau before we start to see growth again in future years.”

Schultz said that he expects a pretty active 2017, although he stressed that it was too early to make a more concrete prediction. However, he added that Aon Securities regards the market as continuing to mature as it goes along.

Schultz said that ILS continues to occupy a niche in the insurance market, and should be viewed as complementary rather than adversarial to the more mainstream solutions. However, he added, in his view it is a strong option for capital in this current insurance cycle.

“You never want to say ‘permanent’, but it does feel as though this capital has carved out a meaningful place in the structure of reinsurance,” he said. “It appears to be pretty fundamental to the way that companies are going to buy their capacity going forward from cycle to cycle and year to year.

“We might see some variation in that, but this capital has proved that it has the ability to have a long-term view and be a long-standing contributor to this marketplace. As the year ticks on it has more of a permanent spot in the reinsurance capacity tower.”

According to Schultz every year that goes by allows the ILS market to strengthen its place in the marketplace as a whole, and adds to the story of its being a part of large property-catastrophe programmes in the future.