ILS market roars to new heights

“It’s been quite a year,” says Paul Schultz, CEO of Aon Securities. “The first half of the year was historic and there were record levels of issuance, due to the culmination of a lot of elements that all went in the right direction for the insurance-linked securities (ILS) market.

“There was a good supply of capital from investors to be deployed into the market, and the pricing from a cedant’s perspective was attractive, so we saw a good number of clients take advantage of that pricing.”

Schultz adds that during the year there were some very large deals in the market, and that three of the five largest ever deals in the cat bond market were completed during the 12 months to December 2017. As a result, a combination of live issuance and larger deals than have been typical of the ILS market, all in the first half of 2017, led to new records from an issuance perspective.

According to Schultz, the natural catastrophe events of the summer, including the multiple hurricanes, the Mexican earthquake and the wildfires in California, caused a pause in issuance, as cedants reviewed their programmes and loss development and investors digested the magnitude of the losses and took stock of their positions and strategies going forward.

However, Schultz is positive. “I would say that the market behaved in a very orderly fashion. The ILS market was tested in a meaningful way this year with records level of capital deployed and it showed that it had the ability to absorb losses and then trade forward,” he says.

“This autumn we’ve seen a number of new deals come to market, following on from these events, so we’re back on track heading for more stability and certainty. We’re still trying to navigate where the market is going to price in the near term, and where the capacity is going to be in the near term, but the steps that have been made so far in the wake of the catastrophes in 2017 have been constructive and are heading towards greater stability.

“In fact, I believe the market is actually poised to go to the next level. Some of the activity that we’ve seen this year is going to drive greater growth opportunities and greater issuance into the market, starting with 2018 and going forward from there.

“The ability to deploy capital and the rate opportunities that are now available are even more competitive on a relative basis compared to other asset strategies.

“Before the hurricane season and the other cat events we were still coming in line with other asset strategies, but post-event, given what will happen to pricing in the near term, it will be quite favourable for the capital providers and the end investors who are deploying capital into this sector,” Schultz concludes.