ILS hits full capacity

The insurance linked securities (ILS) market hit its stride in the first half of 2017, with various ILS products being issued at a rapid rate.

“We’ve seen a tremendous pipeline of ILS products come through during the first half of the year, and we reached an all-time high for annual issuance by the mid-point of 2017,” says Paul Schultz, CEO of Aon Securities.

“The current full year issuance record was set in 2014, when around $8.2 billion of bonds were brought to market, and we are already ahead of that figure by the end of June, which shows that we’ve had a tremendous first half of 2017 in terms of activity.”

According to Schultz, given the focus on executing deals, it’s hard to predict the second half of the year, but the first half delivered some very strong fundamentals in terms of ample investor capacity and pricing, and it feels as though those fundamentals are continuing.

“All things being equal, you’d expect an active second half of the year, but my sense is that we’re not going to know that for certain until perhaps late September, as clients firm up their buying activity for the second half,” he says.

“Our original forecast for calendar year 2017 was for around $8 billion of issuance, and we were probably the most aggressive participant in the market with that forecast. We’ve already exceeded that forecast through June 30, and in part the activity was due to some of the bonds maturing, and clients rolling over that capacity.

“The broader picture is that investors have raised a lot of capital, and there’s often a lag between investors marketing for their clients and the funds coming in.

“What we saw were very strong cash inflows, and investors pricing their products attractively compared to the alternatives available to cedants to transfer risk. The result, given some of the renewals, has been good capacity priced sufficiently, and that set the market up for a good level of issuance in the first half of the year.”

Could some of the various factors that have been influencing the market in 2017 be said to have combined into a metaphorical ‘perfect storm’?

“A lot of things came together at the same time, but whether we’d call that a perfect storm I really don’t know. Things came together to form an attractive market for the first half of the year and now we have to look forward to the second half,” Schultz concludes.