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Catastrophe bond issuance hits $2.8 billion in first half of 2016

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Nonlife catastrophe bond issuance reached $2.8 billion for the first half of 2016, Willis Capital Markets & Advisory said Monday, with $1 billion issued across six transactions in the second quarter.

Three of the six catastrophe bond sponsors were new issuers: Ormond Beach, Florida-based Security First Insurance Co., St. Petersburg, Florida-based United Insurance Holdings Corp. and Zurich-based Credit Suisse Group A.G.

Willis Towers Watson P.L.C.'s investment banking business said in its latest insurance-linked securities market update that repeat sponsors included San Antonio, Texas-based United Services Automobile Association (USAA), Munich Reinsurance Co., and Zurich-based Allianz Risk Transfer A.G.

“Despite the strong Q1 2016 issuance, second-quarter takeup has not been as fervent compared to previous years,” Bill Dubinsky, head of ILS at Willis Capital, said in a statement. “However, sponsors continue to engage with ILS investors through various other products. Decreased outstanding volume created tighter risk spreads in Q2 for this type of ILS and better relative value for ceding companies verses private deals. We expect this relative value gap to drive increased issuance of liquid ILS in response in the coming quarters.”

Mr. Dubinsky also said hurricane season is underway and, combined with the expectation that 2016 will be a La Nina year, “there is unshakeable sentiment among quite a few involved in this year's June and July 1 U.S. property catastrophe renewals that reinsurers and ILS investors will both take significant cat losses.”

“What happens next if this comes to pass depends upon whom you ask,” he said, “but we expect capital will rush into the market post the next event. The historic pricing cycle will not disappear altogether, but temporary capacity shortages and payback will significantly reduce impact compared to the past.”