Willis Capital Markets and Advisory (WCMA) has seen the investor base broaden during Q1 2014, according to its quarterly report.
Q1 2014 saw increased participation from money managers and mutual funds investing directly in insurance-linked securities (ILS) in particular, while Q2 2014 is on course for strong levels of issuance—with the deal pipeline developing on the back of the successful executions in the first quarter.
According to the report, the bulk of the deals in Q2 are likely to include US hurricane exposure.
The report also found that Q1 2014 saw $1.2 billion of non-life catastrophe bond capacity issued in six deals, compared to $1.6 billion marketed in five deals during Q1 2013.
Bill Dubinsky, head of ILS at WCMA, said: “Money managers, mutual funds and ILS specialist investors still see significant value for their investors despite the fall in market clearing spreads. Note that a modest tick upwards in spreads would bring in a significant amount of additional capacity. As a consequence, the risk of running out of capacity seems limited.”
Dubinsky continued: “There are several factors driving the uptick in deals. First, new issuance risk spreads have continued to trend downwards falling from 12.0 percent in Q3 2012 to 6.4 percent in Q1 2014. Second, terms have become more flexible to allow for deals tailored to a sponsor’s needs.”
This flexibility can sometimes increase risk spreads, according to Dubinsky, despite the fact that sponsors have increased options.
Moreover, Dubinsky claims that speed to market is improving—reducing lead times between decisions to proceed and execution. This has, in turn, led sponsors and their brokers resist overpriced private placements.
