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Willis ILS Report: Active Fourth Quarter Pushes 2011 Issuance Volume over $4 Billion

Posted on 09 Feb 2012

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The traditionally active fourth quarter for cat bond issuance stayed true to form in 2011, with nine new non-life issues brought to market, totalling US$2 billion of risk capital. This was the most active quarter last year, and its strong performance brought the total non-life issuance in 2011 to US$4.3 billion, slightly down from the US$4.8 billion we saw in 2010. This is according to the findings of the latest Insurance-Linked Securities (ILS) Market Update from Willis Capital Markets & Advisory (WCMA), part of global insurance broker, Willis Group Holdings.

The quarterly report titled, “Strong Close to Year Pushes 2011 Issuance Volume over $4 Billion”, said that the shortfall in total 2011 issuance when compared to 2010 arose in the first half of last year, largely driven by the uncertainties caused by loss activity and significant changes to the RMS model for US hurricane risk.

Willis reports that US hurricane risk continues to dominate the non-life market, with 68 percent of outstanding issuance exposed to hurricane risk in some form. After seeing US$676 million of non-hurricane diversifiers in the third quarter of 2011, this dropped to just under US$500 million in the final quarter.

WCMA noted that no cat bonds matured in the fourth quarter, largely due to the lack of cat bond issuance during the height of the financial crisis in the last quarter of 2008.

Bill Dubinsky, Head of ILS at WCMA, said, “2011 finished as could be expected, with the quarter's performance proving the strongest of the year. While we are seeing a temporary slowing of net capital inflows due to the wider economic climate, particularly in the Eurozone, we expect the growth in investor capital to continue. Combined with the potential for innovation in the market, taking in new perils, structures and different forms of risk-taking, in 2012 we may see non-life issuance break the US$5 billion mark for the first time since 2007.”

The latest WCMA report contains an analysis of the ILS market from 2005 – 2011, which shows that investors have become comfortable with increased modelled loss profiles and keen to access some higher yielding risks in recent years. The report also features an overview of the January 2012 reinsurance renewal season.

Willis Capital Markets & Advisory, with offices in New York and London, provides advice to insurance and reinsurance companies on a broad array of mergers and acquisition transactions as well as capital markets products. Nothing in this communication constitutes any legal or financial advice or an offer or solicitation to sell or purchase any securities.