ILS capacity drops in second quarter

There was $1.69 billion of property/casualty insurance-linked securities capacity across 11 catastrophe bonds issued in the second quarter of 2019, a “significant” drop from the $4.0 billion in the second quarter of 2018 and $6.2 billion in the second quarter of 2017, Willis Towers Watson PLC said in its second quarter ILS update on Wednesday.

U.S. wind was the predominant peril, as $650 million of pure U.S. wind coverage was issued across three bonds, with the remaining $1.04 billion of capacity placed for peak multiperil protection, the report said.

Second quarter 2019’s 1.69 billion was the second-lowest second quarter since 2014, according to data in the report, with only 2016’s $1.0 billion second-quarter tally lower, the data showed.

There was $27.0 billion of capacity outstanding as of the end of the second quarter of 2019 compared with $27.6 billion for the second quarter of 2018, with peak multiperil representing 54% of the 2019 total, slightly lower than 56% in the year-ago period.

The largest property/casualty issuance was the Federal Emergency Management Agency’s Floodsmart Re 2019 to reinsure the National Flood Insurance Program for named-storm-related U.S. flood events with $300 million of capacity across two tranches, data from the report showed.

Estimates increased for catastrophe bond losses from hurricanes Harvey, Irma and Maria in 2017, the report showed.

At the end of the second quarter of 2018, these losses were estimated at $755 million, while a year later at the end of the second quarter of 2019, loss estimates reached slightly more than $1.0 billion, reflecting nearly a quarter billion dollars of “loss creep,” the report said.

The lower funding in the ILS market turned clients back to relationship-driven treaties for reinsurance capacity, according to William Dubinsky, managing director and head of ILS at Willis Re Securities, in a statement issued with the report.

“The contracting ILS market required cedents to look elsewhere for capacity during the recent renewals,” he said. “Those with at least some relationship-based treaties with long-established reinsurance partners on their books found it easier to plug the gaps relative to those who buy reinsurance on a purely transactional basis. That is likely to be the case for the balance of the year at least.”