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Record new Cat bond, ILS issuance in 2016 spurs highest-ever outstanding market size: Artemis.bm


January 3, 2017   by Canadian Underwriter


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Catastrophe bonds and similarly structured insurance-linked securities (ILS) deals in 2016 propelled the market to record levels, with the approximately US$7 billion in new issuance resulting in an outstanding market size of US$26.82 billion at year-end, notes the latest edition of Artemis.bm Deal Directory.

The figure represents the highest issuance level since the market’s inception, Artemis.bm, which provides online news, analysis and data on the ILS, Cat bond and alternative reinsurance capital market, reported Tuesday.

Tsunami damage of the East Japan great earthquake disasterGlobal new issuance in 2016 exceeded US$7.05 billion, driving the market higher last year. Accounting for deals that matured, the publication takes the volume of in-force transactions at the end of 2016 to a US$26.82 billion.

Given the figures, the expectation is that Cat bonds are here to stay and the ILS market will continue to grow.

Related: Sponsors completed two cat bonds with Canadian coverage in Q1 2016: PCS

“2016 issuance alone failed to break any records,” Artemis.bm reports. That said, “strong investor appetite for insurance and reinsurance-linked investments, coupled with growing interest from sponsoring insurers and reinsurers, ensured the market achieved outright growth,” the statement explains.

For example, last year’s steady growth combined with “impressive burst of expansion into new risks, geographies and classes of both insurance and reinsurance business,” it points out.

The trend is expected to continue, “as investors increasingly learn to appreciate the efficiency and diversification benefits of the asset class and participants become increasingly specialized.”

“The catastrophe bond and ILS asset class, which largely consists of specialist insurance-linked investment funds allocating third-party capital to back insurance or reinsurance business, continues to gain acceptance and expand its footprint within the global market, which Artemis believes has taken it to roughly US$80 billion of total reinsurance market capital,” the statement explains.

Related: “Entire new sponsors” will enter insurance linked securities market: Swiss Re

“With the reinsurance market under significant pressure from a series of headwinds, including the effects of an abundance of traditional and alternative capital, many industry observers and analysts suggested that the catastrophe bond and ILS space would struggle to continue growing,” Artemis.bm points out.

However, even though “traditional re/insurance business might not currently be as profitable as it once was, the catastrophe bond and ILS market remains a viable and attractive return driver for investors,” the statement continues.

The expectation is that efficient capacity from the ILS market will play an increasingly important role and continue to disrupt traditional business models in insurance and reinsurance.

And although continued growth of ILS and Cat bonds represents a continuing threat to the traditional reinsurance business model, “increasingly insurers and reinsurers are embracing this alternative form of capital both for their risk transfer and underwriting needs,” directory findings indicate.

“Emerging risks like cyber and terror, along with the forecasts that climate and weather-related disasters will become more frequent and severe, highlight the need for a broad and diverse risk capital base, which the ILS market appears willing and able to provide,” the statement points out.

Related: Cat bond issuance so far in 2016 down 15% compared to same period in 2015, Fort Mac reviving talk about unmodelled risks: PCS