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ZURICH, SwitzerlandThe latest Sigma study from Swiss Reinsurance Co. is predicting rapid growth in the market for insurance linked securities risk, such as catastrophe bonds.
The Swiss reinsurer, which itself is one of the biggest issuers and arrangers of insurance linked securities, said in the report that the volume of property/casualty securities has doubled over the past five years while the volume of life bonds has tripled.
The total outstanding volume of insurance linked securities is $23 billion, according to Sigma.
"In the past two years, issuance has accelerated rapidly. Primarily driven by the funding needs of the life industry, the volume of outstanding ILS is expected to grow to $150 to $350 billion by 2016," sigma predicted in its report.
The potential for embedded value life securitizations is estimated at $400 billion to $500 billion compared with the current outstanding volume of embedded value life securitizations at $6.3 billion.
Sigma predicts that Solvency II, the proposed European risk-based capital rules, may increase the use of securitization in Europe as the mechanisms are likely to "receive appropriate credit."
For the property/casualty sector, sigma predicts that outstanding catastrophe bonds will amount to $30 billion within 10 years at the current penetration rate, a four fold increase on today's $8 billion.
If penetration rates were to triple, Sigma calculates that the catastrophe bond market would grow to $44 billion. "Given past developments, a $30 to $44 billion market by 2016 appears most likely," the report said.