Insurance-linked securities (ILS) issuance is picking up due to capital constraints in the traditional market, although at higher pricing than traditional indemnity pricing, Gallagher Re reports.
The broker’s 1st View report notes that the initial months of the year were marked by low activity in the primary ILS market, with a significant increase in activity observed towards the end of February.
As of now, there are 13 transactions that have either been completed or are being marketed in the primary ILS market, seeking a capacity of $2.8 billion or higher, the broker said.
Compared to the fourth quarter of 2022, the pricing dynamics in the primary ILS market have undergone a shift, with a greater number of transactions upsizing and execution spreads occasionally being lower than expected. This reflects the fact that some ILS funds have experienced an increase in their Assets Under Management (AUM), Gallagher Re reported.
Additionally, the broker notes although prices in the primary ILS market remain historically high, the increased spread levels have not yet reduced the demand for new sponsors to enter the market.
“If ILS Fund AUM can continue to keep pace with demand, we could see a potentially record year for new issuances,” the broker said.
Investors had raised capital but had limited primary transactions to invest in during the initial months of the year. Consequently, prices in the secondary markets began to rise, leading to a decrease in spread levels at the beginning of the year, it added.
