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Catastrophe bond issuance continues apace in 2017


Catastrophe bonds have been coming on strong in the first quarter of 2017, industry analysts say. 

Aon Securities said in its First Quarter 2017 Catastrophe Bond Transaction Review that $2 billion of catastrophe bond limit matured during the first quarter, but there was an expansion in the overall market, as new issuance slightly outpaced maturities. 

The majority of issuance in the first quarter of 2017 came from returning sponsors to the catastrophe bond market, the Aon study said.

Seven catastrophe bond transactions came to market in the first quarter of 2017, totaling $2.17 billion and coming in just under the all-time record $2.21 billion that came to market in the first quarter last year. 

Aon said that with a further $4.2 billion set to mature in the second quarter, investor capacity remains poised to replace maturing capital with strong demand for new issuances.

“The ILS market is firing on all cylinders in early 2017,” Willis Towers Watson Securities said in its ILS Market Update. “There is a robust pipeline with nearly a record level of deals completed. ILS funds are raising capital and putting it to work.”

The Willis report said there was a total of $1.7 billion of property/casualty catastrophe bond capacity issued through five transactions during the first quarter of 2017, compared with the $2 billion in capacity issued through nine deals during the comparable period a year ago.

The report noted that “the breadth of the ILS market continues to expand not only by products and perils but also in the diversity of ILS investor risk-return appetites.”

“There are a couple of factors,” said Bill Dubinsky, New York-based head of ILS at Willis Towers Watson P.L.C. “There’s some pent-up demand for liquid assets. There’s more than $75 billion in ILS under management on the nonlife side and out of that $75 billion, a little bit less than one-third is in liquid form. And there is a little bit of a shortage of liquid assets, and so supply and demand worked their magic and things are getting more back in alignment. And that liquid portion, that’s the cat bond space.”

Mr. Dubinsky also said that “we also had cat bonds that were maturing in the first half of 2017 and so a lot of the activity is just redeploying money that’s rolling off from the old deals that largely were loss free.”

In general, Mr. Dubinsky said that while there was a good deal of thunderstorm activity in 2016 and Hurricane Matthew did some damage, “it could’ve been a lot worse and it wasn’t.”

Hurricane Matthew formed in September 2016 and became a hurricane in the south central Caribbean. The storm killed about 46 people in the United States, according to the Insurance Information Institute Inc., and insured losses range from $1.5 billion to $7 billion in the U.S.

“It’s been a good year,” Mr. Dubinsky said. “Investors did have some small losses, but their concern would have been that if Hurricane Matthew had gone 40 miles west of the track it took, you could’ve had an absolutely enormous industry event and the investors would’ve suffered losses as well.”

Mr. Dubinsky added: “I think the investors and the reinsurers understand there is going to be a year when things are really bad.”