ILS assets under management continue to grow but at a slower rate than the record breaking pace of recent years, according to the latest ILS report from Willis Capital Markets and Advisory.
The report also showed that $650 million of non-life Rule 144A catastrophe bond capacity was issued across three transactions in Q3 2015, taking the total market issuance for the first nine months of 2015 to $4.8 billion, down 19 percent from 2014.
Bill Dubinsky, head of ILS at WCMA, explained: “The insurance-linked securities market is at an inflection point. Despite the continued downward pressure on reinsurance rates, investor appetite remains strong and we’ve seen net new capital come into the re/insurance arena during 2015.”
“However, the proportion of Rule 144A catastrophe bonds issued compared to other forms of ILS is down as investors have shifted towards more illiquid products, such as private cat bonds and collateralised reinsurance.”
Willis suggested the report questions if this development signals a structural shift of just a ‘head fake’.
Dubinsky said: “There are arguments for and against. To an extent, the shift illustrates increased investor confidence as the market matures. Over time, investors have become more comfortable and knowledgeable about reinsurance risk and are now more receptive to move into more illiquid products with greater confidence.”
“However, this shift is also a sign of more immediate changes within the industry as the recent flurry of M&A activity, coupled with changing program design, has put reinsurance needs in a state of flux. “
He added: “Whether or not the shift away from 144A catastrophe bonds is permanent or temporary, competitive tension continues to provide ceding companies and investors with ample product choice, both to cede risk and invest.”
The report also highlights the emergence of Bermuda as the predominant domicile for new ILS vehicles. In 2011, Bermuda represented 18 percent of the market compared to the current 67 percent.
“This is a structural change. Since the start of the market the Cayman Islands has been the leading domicile for cat bonds. Roughly 90 percent of all cat bonds issued since the mid-1990s to 2012 were domiciled in Cayman. However, despite Cayman’s new Insurance Law in 2013, Bermuda is emerging as the preferred domicile for new ILS vehicles.”
He concluded: “We wait and see how this will change with the UK Treasury’s stated intention to make London a primary centre for the issuance of cat bonds and other ILS products as well as the initiatives in other jurisdictions.”
