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Insurance-linked securities show robust potential for 2018

Insurance-linked securities show robust potential for 2018

Following a record-setting 2017, which saw the issuance of $10.7 billion of insurance-linked securities, issuance in 2018 is expected to be between $8 billion and $9 billion, according to a report released Monday by Aon Securities, part of Aon Benfield Group Ltd.

The report says that during 2017, there were 35 catastrophe bonds issued by 31 different sponsors.

The $10.7 billion in issuance surpasses the previous annual issuance record of $8.38 billion established in 2007.

The report noted that the standing 2007 record was surpassed by the end of June of 2017, following issuance of $2.2 billion in the first quarter and issuance of $6.4 billion in the second quarter.

This was followed by third-quarter issuance of $800 million and a fourth-quarter issuance of $1.3 billion, the Aon report said.

The firm was bullish on the prospects for the market in the wake of an active 2017 catastrophe profile with estimates of insured losses as high as $135 billion.

“Given that in 2006 we estimated alternative capacity was $17 billion of an overall $385 billion of global reinsurance capital, and in 2017 we estimate the same comparison to be $89 billion of an overall $605 billion, alternative capacity has become an increasingly more meaningful part of the reinsurance sector,” Aon Securities said in its report.

“Not only was alternative capital able to roll over renewing contracts at January 1, 2018 but we note additional capital investments were made into the asset class via managers that participate in collateralized reinsurance, sidecars, and catastrophe bond allocations,” the firm added.

A separate report Monday from Willis Towers Watson Securities, a unit of Willis Towers Watson P.L.C., said that 13 securities are likely to be “severely affected” by the 2017 catastrophe activity.

This, however, amounts to total impaired cat bond capacity of $985 million with an estimated principal loss is $480 million, representing slightly less than 4% and just 2%, respectively, of the outstanding widely distributed cat bond capacity, the Willis Securities report said.

“It looks like the ILS market passed the test,” Willis Securities added.

Property/casualty ILS capital stood at $88 billion at year-end 2017, up 17% over last year’s $75 billion, notwithstanding the substantial loss activity in H2 2017, according to Willis Securities.

The firm took an equally bullish note on the market moving forward.

“There should be no room for confusion; the ILS community is signaling that it is ready and open for business. It is going to be a very robust issuance season,” Willis Securities said, without providing a specific forecast.

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