Q1 sees record property/casualty ILS issued: Reports

The first quarter of 2018 saw a record $3.58 billion of property/casualty insurance-linked securities issued through 10 transactions, according to an Aon Securities report Thursday titled Insurance-Linked Securities Q1 2018 Update.

The $3.58 billion in new issuance breaks the standing first-quarter record of about $2.2 billion in both first quarter 2016 and Q1 2017, the Aon Securities report says.

The market, however, is not expected to drop off in the second quarter as it did after 2016’s first-quarter record.

“Unlike Q2 2016, when only $1.0 billion of capacity was issued in the second quarter, we expect a robust pipeline in the second quarter of 2018 as well,” according to the report titled ILS Market Update April 2018 Reloaded and Ready from Willis Towers Watson P.L.C.

This year’s record first-quarter issuance was anchored by the year’s first transaction in which the governments of Chile, Colombia, Mexico and Peru secured $1.36 billion of parametric earthquake coverage on a per-occurrence basis.

The $500 million Sanders Re 2018-1 covers Allstate Insurance Co. against named storms, earthquakes, severe thunderstorms, fires and other perils in all U.S. states except for Florida and New Jersey for four years on an indemnity trigger and both a per-occurrence and an annual aggregate basis, the Willis Towers Watson report said.

Both brokers are bullish on the sector even in the wake of 2017’s extraordinary catastrophe losses.

“ILS expansion continues. Investors have fully reloaded and are now putting capital to work in the lead-up to the crucial 6/1 Florida renewal date,” the Willis Towers Watson report said.

“The first-quarter catastrophe bond issuance figure has set a positive tone for the remainder of 2018,” Paul Schultz, CEO of Aon Securities, said in a statement issued with the report.

While the heavy losses did not appear to have scared away investors, they may have been left wanting for a more pronounced market reaction.

“Most end investors expect to take losses over time, especially from TV-news-type events. The marketing of ILS fund investments and direct investments makes this risk and others crystal clear,” the report said.

“Perhaps some end investors are disappointed that the 2017 losses did not seem to at least create broad-based capacity constraints driving up pricing across the board,” it added.

“Following the potential losses that could have been incurred from the series of 2017 natural disaster events, investors in this sector could easily have taken a ‘wait-and-see’ approach,” Mr. Schultz said. “However, given the record levels of issuance seen during the first three months of the year, it is clear they are aware of the inherent value of ILS and are comfortable with the associated risks.”