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A slow return to a more normal ILS environment: Willis Re Securities

17th September 2019 - Author: Luke Gallin

Data and analysis from Willis Re Securities, a division of re/insurance broker Willis Towers Watson (WTW), reveals that non-life insurance-linked securities (ILS) issuance fell in the second-quarter of 2019.

willis towers watsonAt just under $1.7 billion, non-life ILS capacity issued in the quarter came from 11 catastrophe bond transactions, and fell from the $4 billion in Q2 2018 and $6.2 billion recorded in Q2 2017.

This is according to the latest ILS market report from Willis Re Securities, which shows that as in the first-quarter of this year, second-quarter 2019 ILS issuance was dominated by U.S. wind-focused deals. The report states that this includes $650 million of pure coverage for U.S. wind across three deals, and $1.04 billion for peak multi-peril protection.

Notable cat bond issuances in the quarter include the second FloodSmart Re deal from FEMA, which at $300 million is $200 million smaller than the issuance of the first FEMA deal in 2018.

Willis Re Securities also highlights the expansion of mortgage ILS deals of which four were issued in the period, and, as highlighted by the Artemis Deal Directory (which tracks all ILS and related deals), is becoming an increasingly large component of the overall ILS market.

While at a substantially lower rate than before, reported loss creep from prior year catastrophe events continued to hit the ILS market in the second-quarter of 2019.

At the end of June 2018, cat bond losses arising from the trio of 2017 hurricanes, the California wildfires, and the Chiapas quake totalled $755 million, which is around 3% of the $25.1 billion of distributed non-life cat bond capacity outstanding before hurricane Harvey (the first of the three hurricanes).

In contrast, at the end of the second-quarter of 2019, the total 2017 loss under cat bonds reached just above $1 billion, or 4.2%, which reflects nearly a quarter billion dollars of loss creep, and a year-on-year increase of roughly 40%.

Managing Director & Head of ILS at Willis Re Securities, William Dubinsky, said: “Things are slowly returning to a more normal ILS environment, but relationships will still matter over the next six months if cedants are to get the protection they need at sensible pricing, terms, and conditions. The contracting ILS market required cedants to look elsewhere for capacity during the recent renewals.

“Those with at least some relationship-based treaties with long-established reinsurance partners on their books found it easier to plug the gaps, relative to those who buy reinsurance on a purely transactional basis. That is likely to be the case for the balance of the year at least. Both approaches have merits, however, and the ideal balance will be different for each reinsurance buyer.”

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