The market for non-life insurance linked securities reached $2.2 billion for the second quarter of this year, bringing the first-half 2013 total to $3.8 billion after a historically strong first quarter, a new report says.

According to Willis Group Holdings' Willis Capital Markets & Advisory, Q2 catastrophe bond issues were up $100 million from the same period last year. The quarter saw 14 catastrophe-bond tranches issued compared to 12 tranches last year.

The broker adds that at the current rate of execution, the ILS market could exceed $7 billion if some 2014 transactions take place this year.

Of the 10 bond sponsors in Q2 there was only one new sponsor, American Coastal Insurance Co. with a Florida-only bond—Armor Re issuance. Willis says the emergence of a new sponsor in the ILS market “is testament to the competitiveness of reinsurance equivalent pricing and is a strong positive signal to other first time sponsors.”

Approximately 72 percent of the cat bonds placed so far in 2013 deal with U.S. hurricane risk—almost identical to last year—but there was a number of diversifying bonds placed in Q2. Among these, Willis noted Munich Re's Queen Street VIII for exposure to Australian cyclone risk and Turkish Cat Pool's Bosphorus I Re covering Turkish quake risks.

Willis says it is too soon to tell whether the success of these issuances will draw more interest to non-U.S. wind peril bonds.

The head of ILS at WCMA, Bill Dubinsky, says the report raises questions about how far the cat bond and collateralized reinsurance market can expand beyond its mainstay of natural catastrophe perils. To continue on the same pace of growth seen in the past few years the market will need to accept a growing pool of perils, he says.

“Some of these new perils are evolutionary, not revolutionary—such as earthquake risk in areas like Colombia, Chile, Israel and even China,” says Dubinsky. “Others may represent a more radical departure from market norms. For example, will investors accept standalone U.S. terrorism risk if [the Terrorism Risk Insurance Program) is not renewed? Will casualty risk finally become more at home in the capital markets?”

Touching on sidecar issuances, the market is growing once again after reaching heights of around $3.3 billion in 2006 before its fall during the economic crisis. So far in 2013, there have been seven sidecars announced with an estimated capacity of over $1 billion.

Special Reports /

ILS Market Continues Growth; Could Exceed $7B for 2013

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