ILS market growth continues in first quarter of 2017, record year possible: Willis Towers Watson Securities

Non-life insurance-linked securities (ILS) capital grew again in the first quarter of 2017, continuing the trend from last year, the securities division of Willis Towers Watson (WTW) has reported.

Willis Towers Watson Securities, the investment banking business of WTW, released its ILS Market Update on Tuesday. It found that following a strong fourth quarter of 2016, the market maintained momentum in the new year as the first quarter of 2017 ending March 31 saw US$1.7 billion of non-life cat bond capacity issued through five transactions.

The record first quarter of 2016 saw US$2 billion issued through nine deals.

“The ILS market is firing on all cylinders in early 2017,” the report said. “There is a robust pipeline with nearly a record level of deals completed. A record year seems possible.”

ILS funds continue to raise capital while sponsors respond to the attractive spread environment by seeking new protection back by liquid ILS (cat bonds) as well as continuing to work up protection in other forms, WTW Securities said in a press release. In the meantime, spread levels and margins continue to decline as investors increase their capital and gain market share.

The report added that as returns decline, ILS market participants need to find new structures to enhance returns, whether from more efficient collateral or otherwise.

“As expected, assets under management have continued to grow at roughly the same pace as in 2016,” Bill Dubinsky, head of ILS at WTW Securities, said in the release. “This is against a backdrop of challenging market conditions as competition among various players intensifies. Looking ahead, we can be confident that the ILS market will continue to expand and grow as reinsurers and other players invest in this space. The breadth of the ILS market continues to expand not only by products and perils, but also through increasingly differentiated risk-return appetites among the various investors.”

With offices in New York, London, Hong Kong and Sydney, WTW Securities provides advice to companies involved in the insurance and reinsurance industry on a broad array of mergers and acquisition transactions, as well as capital markets products. This includes acting as underwriter or agent for primary issuances, operating a secondary ILS trading desk and engaging in general capital markets and strategic advisory work.