Insurance-linked securities (ILS) will break issuance records last set in 2007 as the embrace of alternative investments in the property/casualty industry continues to grow, according to an update from Willis Capital Markets & Advisory.

Willis said in its October ILS market update that the firm still predicts a final tally of non-life ILS issuance will reach between $8 billion and $9 billion. That record will take only about $1.2 billion more issuance to break, Willis noted, pointed out that there are wider factors at play that continue to accelerate the trend.

“The actual number is not really as important as the broader participation of investors in sidecars, cat bonds and collateralized re, which continues to grow at a rate consistent with this estimate,” Willis said.

While that milestone may be hit, it will happen after some major evolution in the ILS market in recent years, Willis noted.

Among the changes since 2011, according to Willis:

  • ILS capacity providers used to be the last funding a sponsor would try to access as part of its risk transfer program. But now, “ILS capacity is being fully integrated into the reinsurance purchase decision.”
  • Indemnity triggers, after major growth, are now the predominant trigger type for new issuance.
  • Before, indemnity triggered cat bond transactions needed the sponsor to warrant they would retain at least 10 percent of the layer being covered, and not otherwise reinsurance that risk. Now, with that co-participation requirement largely gone, sponsors not comfortable with keeping additional losses over their program’s retention can use cat bonds alongside their traditional reinsurance purchase.

Source: Willis Capital Markets & Advisory