Catastrophe bond issuance was at a record-high during the third quarter of 2018, totalling $1.6 billion, which exceeded the former Q3 record of $1.4 billion in 2013, according to the new insurance-linked securities (ILS) Market Update from Willis Re.
The Q3 total is also well ahead of the $800 million five-year average and puts this year’s total cat bond issuance – already at $8.7 billion by 31 September – on track to exceed last year’s $9.7 billion full-year record.
Willis Re noted that Q3 saw the market continue its move away from index triggers to indemnity-based structures, with 60% of year-to-date bonds triggered by issuers’ own losses, compared to just 40% in 2008.
However, the firm suggested that this trend reflects an improvement in data, transparency and overall understanding of indemnity risk, rather than an inherent discomfort with index triggers, and maintained that parametric and other kinds of index triggers remain important.
Based on a proxy for actual loss, index triggers are still common for retrocession cat bonds and insurance-linked warranties (ILWs), and these structures remain attractive options when underlying data quality is poor or coverage is particularly difficult to model, the report stated.
“As the insurance, reinsurance, and ILS markets work together to solve new problems for insureds, index triggers are a very useful tool to consider,” said William Dubinsky, Managing Director & Head of ILS at Willis Re.
“They may not, on their own, close the global protection gap, dramatically grow the ILS market, or solve all cedant problems, but with creativity, unbiased advice, and sustained effort, they can still have a meaningful impact.”
Other notable findings for the quarter included cover for new perils, such as $500 million for flood resulting from U.S wind and $200 million for California wildfire liability.
Mark Hvidsten, Willis Re’s Deputy Chairman, also suggested that the firm was better position to support ILS cedents following the combination of Willis Towers Watson’s ILS business with Willis Re
“The amalgamation of the reinsurance and ILS teams into a cohesive business unit allows us to offer integrated solutions that serve clients’ long-term needs,” he said. “Our capital markets professionals now work alongside reinsurance brokers to ensure that our brokers are best placed to offer integrated strategic advice to our clients across the full spectrum of capital solutions.”
