New issuance volumes for insurance-linked securities (ILS) were atypical in 2016, Swiss Re reported on Friday, noting that for the first time, the third quarter was larger than the second quarter.
While the second quarter is typically the busiest of the year due to the wind season in the United States and it was “surprisingly active,” Q3 exceeded Q2 issuance with US$925 million, Swiss Re noted in the report, titled Insurance Linked Securities market update. Meanwhile, the fourth quarter surged to US$2.12 billion, the third largest Q4 of record and the largest quarter of the year. “The US$3.04 billion of new issuance in 2H marks only the fourth time in history of 2H issuance over US$3 billion,” the report added.
With 20 transactions, 2016 saw the fewest number of deals brought to market since 2009. However, average deal size was the second largest in history, behind only 2014, which included the US$1.5 billion issuance of Everglades Re. The average size of a transaction in 2016 was approximately US$300 million, nearly 20% larger than the average deal size in 2015. The increase in size was especially prevalent in the second half as the final notional of the tranches issued during this period were upsized by approximately 60% on average for their original target notional, the report noted.
Issuance in 2016 was once again dominated by U.S. wind and earthquake deals, with each of the two perils contributing to over half of the market, Swiss Re reported. These peak U.S. perils were complemented by many diversifying perils, including an earthquake in Canada, windstorm in Europe, Japan typhoon and earthquake, Australia cyclone and earthquake, extreme morbidity, and, for the first time since 2005, motor third party liability.
Overall, the ILS market recovered from its mid-year dip in size back to around the 2014 record level of US$24.1 billion, lifted largely by the wave of new issuance in November and December. Though much of this year’s issuance was not attributable to renewals, maturities were almost precisely offset by new issuance (for the second year in a row), thus maintaining the size of the market.
Looking at 2017, the report said that the first half is already off to a good start with over US$500 million settled in early January.