ILS market to contract in short term

The insurance-linked securities (ILS) market will contract in the coming months, largely because some $2.7 billion of bonds are scheduled to mature in January. But the pipeline for new issuance also remains healthy.

This is according to Swiss Re Capital Markets, commenting in its year end 2014 ILS report. It added that although it expects an initial contraction in the size of the market this year, early indications suggest a healthy new issue pipeline.

This should lead to continued market expansion as returning sponsors look to renew and expand their programmes and new sponsors diversify their platforms, it said.

“The elevated demand and sophistication level of the investor base have enabled sponsors to issue cat bonds which provide them with coverage that more closely resembles their traditional reinsurance programmes,” said the report.

“Though we did not see any new sponsors in the second half of 2014, we did welcome eight new sponsors in the first half of the year and recent placements have progressed to include new as well as unmodeled coverage and perils.”

Swiss Re added that a record setting $8.3 billion of bonds were issued in 2014 – growing the size of the market to $24.1 billion in the process. This is approximately 20 percent greater than the record set for year-end 2013.

“Once again new issuance outpaced maturing bonds leading to strong growth of the market. After contracting for four straight years beginning in 2008 the market has seen three consecutive years of approximately 20 percent yearly growth, growing to a record $24.1 billion outstanding,” said the report.