Storm losses could accelerate ILS growth
The recent hurricane losses in the US could
help accelerate growth in the insurancelinked
securities (ILS) sector—but spreads may
not widen as much as investors hope.
That is what Nelson Seo, managing director of
investment manager Fermat Capital
Management, one of the oldest ILS fund
managers in the world, told PCI Today, speaking
ahead of the conference at which the reaction
of the third party investors to recent catastrophe
losses will likely be a big talking point.
Seo says the storms have triggered more
interest in the ILS space from investors who
foresaw an opportunity to benefit from better
spreads in the aftermath of losses.
He stresses it is too early to tell how spreads will
react but this dynamic could nevertheless help
growth the market overall.
“It has caused a lot more interest in ILS and
no-one is exiting the space. These events may not
turn out to be as big as some estimates suggest
and few cat bonds will be affected so I am not
sure there will be a big correction in the market,
but it has generated interest.
“On that basis, I feel the main result of these
“Interest in ILS was building
anyway but this could help grow
the market even more.”
cats will be a market growth effect as opposed
to spreads blowing out. Interest in ILS was
building anyway but this could help grow the
market even more.”
Commenting on the wide variation between
loss estimates from the risk modelling agencies,
Seo adds that investors who understand the
challenges of post-event loss estimates will not be
perturbed by this.
“It is very difficult for the modellers postevent.
The probable maximum loss set in
advance is more important, and we feel those are
accurate. The problem is that each storm has so
many nuances in terms of its speed and direction
of travel that it is very difficult for a model to pick
all that up.
“Irma, for example, made landfall as a category
4 but its wind speeds died very fast afterwards.
Once you understand these nuances as a user of
the models, it is less of a concern,” he said.
Seo added that while he expects growth in
ILS to be across the board, there could be a
spike in interest from buyers in aggregate deals,
which are triggered based on a combination of
“The traditional markets have never loved
aggregate deals but the ILS markets will do
them. They could become even more popular
now,” he said. n
ILS market experiences quiet Q3 2017, claims PCS
The ILS market has undergone a quiet third
quarter of this year, according to a new
report from Verisk subsidiary Property Claim
The report, Bigger and More Mature: PCS Q3
2017 Catastrophe Bond Report, points out that
catastrophe bond issuance in the third quarter of
2017 was quiet, and that this is because, except
in years where second quarter transactions have
spilled over to July, this tends to be the normal
state of affairs for that period.
According to PCS, sponsors completed two
catastrophe bonds in the third quarter, resulting
in $460 million in new limit and bringing the
year’s total issuance to nearly $9.3 billion, which
for the year to date, is a record.
PCS also points out that because of the
first half of 2017 representing the busiest full
issuance year in catastrophe bond market history,
each subsequent transaction has been pushing
the market into record territory.
However, issuance activity isn’t what made
the third quarter interesting this year, rather
it’s been the potential for the catastrophe bond
market to see claims.
“Two significant hurricanes made landfall in
the US—with Harvey initially
making landfall in Texas and
Irma striking the coast of
Florida,” said the report.
“Both storms ultimately
moved inland and affected
several states (detailed
information is available in
the PCS catastrophe bulletins
associated with each event).”
While big storms and
issuance activity tend to
garner the most focus, PCS
pointed out that it’s important
to note new signs of maturation in the ILS
sector. In addition, following the second-quarter
launch of PCS Global Marine and Energy, the
first industry loss warranty (ILW) to use this new
service as a trigger was completed in the third
quarter of 2017.
Looking at the transactions
in more detail, PCS said
that insurers and reinsurers
sponsored approximately $9.3
billion in catastrophe bonds in
the first nine months of 2017,
up 148 percent year over
year. Sponsors completed 31
transactions—up from 16 in
the first nine months of 2016.
Average transaction size
rose to nearly $300 million, a
year-over-year increase of 28
PCS H1 2017 Catastrophe Bond Report
PCS® H1 2017 Catastrophe Bond Report
We saw a show of brute market force in the second quarter of 2017. Following a record-setting first quarter,
catastrophe bond issuance activity surged even further. Sponsors completed 21 transactions and raised an
eye-popping $6.5 billion. That brought first-half totals to 29 transactions and nearly $8.8 billion in new limit.
To put this in perspective, the first half of 2017 was larger than the largest full year in catastrophe bond market
history—and the second quarter alone would be among the top five years.
With this much activity, it’s hard to characterize it in specific terms. While transactions came from experienced
sponsors, there were four debut issuances. Fourteen were small transactions ($200 million or less), and the
remainder ranged in size from $200 million to $950 million. Two nearly reached $1 billion each. Three sponsors
accounted for more than $2 billion in capital raised in the second quarter, and since the beginning of the year,
$3 billion came from only five. Since the beginning of the year, 14 transactions have come from transactions
of less than $200 million, showing that a handful of larger catastrophe bonds have made a difference.
Essentially, with so many catastrophe bonds completed, it’s safe to say that there’s (at least) a little of everything.
H1 2017 Catastrophe Bond Issuance
According to data from the Artemis.bm Deal Directory, insurers and reinsurers sponsored approximately $8.8 billion1
in catastrophe bonds in the first half of 2017, up a staggering 213 percent year over year. Sponsors completed
29 transactions—up from only 14 in the first half of 2016. Average transaction size climbed significantly (51 percent)
to $303 million due to the disproportionate effects of one of two Kilimanjaro Re transactions and Ursa Re—not to
mention five other transactions of at least $400 million.
H1 2017 H1 2016
H1 2017 Issuance Activity
PCS trigger use ($ millions) $4,500 $1,700
PCS trigger use (# of transactions) 12 8
North American issuance ($ millions)2 $8,300 $2,400
North American issuance (# of transactions) 27 12
Total issuance ($ millions) $8,800 $2,800
Total issuance (# of transactions) 29 14
Sources: PCS, Artemis Deal Directory
1. This does not include cat bond lite transactions, private catastrophe bonds, or transactions not focused on lines outside property.
2. This includes catastrophe bonds that included the United States and other regions.
8 | PCI TODAY | DAY 1: Sunday October 15 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com
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