ILS activity at near record levels

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16 July 2012

The insurance-linked securities (ILS) market has had its most active first half since 2007, a Swiss Re report says.

For the first six months of this year, $US3.6 billion ($3.5 billion) of new securities were issued, double the $US1.8 billion ($1.76 billion) sold in the first half of last year, and just $US237 million ($232 million) short of the 2007 record first-half.

“Any way the numbers are spun, the first half of 2012 was a thoroughly impressive one for the ILS market,” the report says.

The securities are financial instruments that can be used in place of traditional reinsurance, and Swiss Re says both new and repeat sponsors were attracted by price levels that are “increasingly competitive with traditional reinsurance”.

In the first half of this year, there were 16 transactions in 28 tranches, with familiar catastrophe bond players such as Allianz, Chubb, Munich Re and Swiss Re participating.

US hurricane risk featured in 23 out of the 28 tranches.

The first half also featured the largest tranche in the history of the ILS market, worth $US750 million ($733 million). This was issued by new market entrant Everglades Re, a Bermuda-based special purpose reinsurer established to issue securities to cover US hurricane risk for Florida Citizens Property Insurance Corp.

The total amount of outstanding catastrophe bonds at the end of the first half of this year was $US14.7 billion ($14.4 billion), outstripping last year’s full year-end total of $US13.7 billion ($13.4 billion).

“The signs of growth are clear for the ILS market,” Swiss Re said. “We remain optimistic regarding new issuance for 2012. It remains clear that sponsors view the ILS market as an important part of their risk management programs.”