6 February 2013 Alternative Risk Transfer

ILS issuance hits new heights

Last year saw the second highest level of catastrophe bond issuance on record signalling strong growth in the market, according to Willis Capital Markets & Advisory (WCMA). At year end, $5.9 billion of catastrophe bonds had been issued – a 37 percent increase over 2011, according to the unit’s latest Insurance-Linked Securities (ILS) market update.

The fourth quarter of 2012 saw new issuance volume of $1.9 billion of non-life capacity. This capacity was issued through seven transactions, which compares with the same volume ($1.9 billion) in nine deals in Q4 2011. Three transactions were sponsored by reinsurers, three by primary insurers and one by a government entity.

US hurricane risk continued to be the predominant catastrophic natural peril being securitised and sold in the capital markets – with 71 percent of outstanding cat bond limits exposed to some form of US hurricane risk.

While money continued to flow into ILS funds during the final quarter of 2012, primary issuance was still insufficient to meet investor demand. This triggered bidding wars on some bonds.

“Most ILS investors were hoping that early December would be full of new issuances as it had been historically. However they were disappointed to have fewer bonds than necessary to meet their cash inflows. We believe investors will anxiously welcome the new issuances that are in the pipeline,” said Bill Dubinsky, head of ILS at WCMA.

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