The first quarter of 2016 broke the record set twelve months earlier for the biggest start of the year for insurance linked securities (ILS) issuance, according to WCMA’S market update report.
New issuance reached $2bn in the first quarter, reported the capital markets arm of broker Willis Towers Watson.
The $23.2bn total ILS capacity outstanding at the end of March was also a market record, noted the broker and structurer of ILS deals.
The quarter’s new issuance came through nine ILS transactions across 13 tranches.
New capacity was up 35% compared to the same period of 2015 which saw $1.5bn in seven ILS issues.
“The headline figure shows that a record level of nonlife ILS was placed during the first-quarter, highlighting the continued appetite for risk from investors and alternative reinsurance capital from ceding companies,” said Bill Dubinsky, ILS head at WCMA.
“Nonetheless, it is too early to say whether the strong Q1 issuance will translate to a record-breaking year,” said Dubinsky.
One notable fact was that there were no new market entrants on the sell-side for any of this year’s deals, all of them being launched by repeat sponsors.
And other than the Japanese bonds Akibare Re and Aozora Re, the first quarter was dominated by US transactions.
WCMA said the deals had offered healthy returns to investors, citing Merna Re 2016-1 as the only US transaction paying a coupon below 5%.
Elsewhere in the report WCMA highlighted that pension funds and consultants had honed their focus on transparency in catastrophe risk modeling, and as a results ILS funds and ceding companies are responding with more modeling information.
“Going forward we may start to see similar pressure for better transparency in portfolio valuation,” said Dublinsky.
“As with better modeling, more transparency in valuation will lead to a larger ILS market,” he added.
Charts taken from WCMA's ILS Market Update: Record Setting Start to 2016 (April 2016).