Another Active Quarter for Insurance-Linked Securities

NU Online News Service, Feb. 10, 2:57 p.m. EST

Insurance-linked securities had another active fourth quarter, but did not break any placement records for 2011 according to a report from Willis Group Holdings.

In its “ILS Market Update” Willis says 2011 fourth-quarter catastrophe bond issuance came in at close to $2 billion compared to the previous year’s $2.02 billion.

For the year, total catastrophe-bond issuance was $4.3 billion, compared to 2010’s total of $4.8 billion.

Willis says the drop compared to 2010 was driven by the uncertainties caused by loss activity in the early part of the year and the significant changes made in the RMS catastrophe model version 11 forU.S.hurricane risk.

Bill Dubinsky, head of insurance-linked securities at Willis Capital Markets and Advisory, a part of Willis Group Holdings, says in a statement, “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 $5 billion mark for the first time since 2007.”

There were a total of nine issues in the fourth quarter, dominated byU.S.hurricane risks. Willis says that 68 percent of outstanding bond risk is exposed to hurricane risk in some form.

Chartis had the largest issue in the quarter: $575 million from its Compass Re catastrophe-bond vehicle.

Willis notes that Chartis has $1.45 billion of bonds outstanding, or 11 percent of the total market. The Compass Re program protects againstU.S.hurricanes and earthquakes for three years.

The quarter also saw the establishment of Golden State Re sponsored by the California State Compensation Insurance Fund. This $200 million tranche provides three years protection resulting fromU.S.earthquakes against workers’ compensation claims. Willis notes this is the first catastrophe bond designed to exclusively cover a portfolio of workers’ comp exposures.


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