Insurance-linked securities (ILS) issuance for Q2 2016 was at its lowest level for Q2 for the last five years, according to Timetric.
Timetric claimed that the market experienced a net capital outflow during Q2 2016, as a substantial proportion of Q2 2013 issuance matured.
However, Jay Patel, an insurance analyst at Timetric’s Insurance Intelligence Center suggested that these are just short-term fluctuations in a market, with large scope for expansion.
A recent report by the Property Claims Services (PCS) noted that catastrophe bond transactions in 2016 mainly involved repeat sponsors, suggesting that there is potential to increase awareness and use of ILS.
During a Guernsey Finance event this month, a panel claimed that natural disasters in H2 could have a serious impact on the returns generated by ILS and reinsurance linked investment markets in 2016.
Des Potter, head of GC Securities for Europe, the Middle East and Africa, told the audience that three sizeable events in the first half of this year had created a scenario where further disasters, such as hurricanes, in the latter part of 2016 could lead to losses being incurred by some ILS funds.
Potter went on to say that H1 2016 has been an interesting period for catastrophe losses.
He said: “There’s probably been three reasonable-sized events so far; the largest being the wildfires in Canada, and you can probably add to that some of the tornado hail events in the US and the earthquake in Japan. Each of those events is estimated to generate over $3 billion of losses to the insurance industry.”
He explained that much of this loss was being borne by the reinsurance market, which in turn had retroceded some of that loss into the ILS market.
Potter added: “The impact in the ILS market is going to be relatively small, though. The losses so far, in the first half of the year, will just be within the expectations of the budgeted loss ratios of these sidecars, although the level of losses in H1 are probably running ahead of plan.”
“So, we’re probably at an interesting stage of the year when we’re looking with interest at the activity in H2.”
