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Demand for riskier insurance-linked securities rises in second half of 2013: Swiss Re


January 22, 2014   by Canadian Underwriter


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The insurance-linked securities market continued to grow in 2013, though new issuances were not as large last year as they were in 2007, according to a new report by Swiss Re Capital Markets Corp.

“For the second year in a row the new issuance ILS market climbed to its 2nd largest yearly total,” Swiss Re stated in its Insurance Linked Securities market update.

Swiss Re added there were $7.42 billion worth of new ILS issued, across 31 transactions, in 2013. All figures are in United States currency. Last year “surpassed” the 2012 total by $1.14 billion, though $8.24 billion was issued in 2007.

But 2013 “ends up being the largest year on record” if one excludes certain ILS that are related to natural catastrophes, Swiss Re suggests.

There were $3.45 billion worth of ILS issued in the second half of 2013. Contrary to the first half of 2013, “where most new issuance focused on highly remote layers and spreads below 5-6%, the second half of the year gravitated toward riskier layers with 12 of 21 tranches pricing with a spread above 6%.”

On Dec. 30, Tradewynd Re Ltd. issued three tranches — with a combined total of $400 million — on behalf of American International Group Inc.  Those cover named storms and earthquakes in the 50 U.S. states, part of the Caribbean and the Gulf of Mexico.

“In order to enable investors to better evaluate the risk,” Swiss Re noted, AIG provided data to Risk Management Solutions Inc., EQECAT Inc. and AIR.

“RMS was chosen as the modeling firm on the transaction, and both EQECAT and AIR had the opportunity to run the portfolio and provide additional insights to investors.”

Other new issuances in 2013 included: $400-million by Bosphorus 1 Re Ltd., in April, covering earthquake risk in Turkey; $500 million by Tar Heel Re Ltd. for North Carolina wind; and $300 million by Galileo Re in October, covering U.S. wind and earthquake, as well as European wind.

Swiss Re noted that higher yielding bonds “have seen greater demand as the first half of 2013 was dominated by issuance paying below 5%.”

There was also a “growing trend” towards the end of the year for investors to offer their bonds into the secondary treading market, Swiss Re noted.

“Motivated by the expectation that new issue pipeline will be rather slow in January-February 2014 coupled with the sizable amount of bonds set to mature in Q1, many investors are already trying to secure more bonds in the secondary market, setting the stage for a holding pattern of tight spreads for Q1 2014.”


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