New record ILS issuance in Q1: Swiss Re market update

The start of 2015 has continued on the Insurance Linked Securities (ILS) market’s record-setting pace from last year, with a record US$2.69 billion of bonds called or matured, according to the Swiss Re Insurance Linked Securities Market Update, released on Monday.

The report said that “a tsunami of maturities” preceded a blizzard of new issuance as January 2015 saw a record US$2.69 billion of bonds called or matured, leading to a record Q1 of new issuance totalling approximately US$1.7 billion. This issuance is nearly 20% ahead of Q1 2014.

Interestingly, the Swiss Re report said, the ILS market did experience a slight contradiction as maturities outpaced new issuance. The ILS market currently stands at US$23.2 billion, down from US$24.1 billion at year-end 2014, but still well ahead of the USD$22 billion outstanding at mid-year 2014.

The first half of 2015 has remained extremely active, tallying the second highest first-half issuance level of US$4.66 billion, behind only first-half 2014 total issuance.

“New issuance was met with strong demand in the first half though many investors have reported that the makeup of their investor base experienced further changes throughout the period,” the report said. “Fund managers have indicated that they’ve seen some of their early, more opportunistic investors retract from the space, while new, more long-term-oriented investors have increased their exposures, leaving the overall size of the investor base relatively unchanged.”

The report noted that spreads in both the primary and secondary markets maintained their relative stability, and in some cases began to widen from the lows experienced over the summer one year ago. “As a leading indicator, secondary ILS spreads show rates are widening,” the report said. “The stabilization that started in late 2014 and continued into 2015 has progressed into a steady widening, which we believe is a precursor to traditional renewals. It appears that the downtrend has eased and we wouldn’t expect rates to achieve new lows, year-over-year, going forward the next few quarters.”