The issuance of non-life insurance-linked securities during the third quarter reached a record $1.6 billion, according to a report published by Willis Re.

The total exceeds the former Q3 record of $1.4 billion achieved in 2013 and is well ahead of the five-year average of $800 million, said Willis Re’s ILS Market Update.

The activity puts this year’s total issuance – already at $8.7 billion by Sept. 31 – on track to meet or even exceed last year’s $9.7 billion full-year record, said the report.

Of the $1.6 billion issued this past quarter, $200 million will provide peak multiperil protection and $650 million will provide U.S. earthquake protection, the report added. The remainder covers new perils, with $500 million providing protection from flood resulting from U.S. wind and $200 million providing California wildfire liability protection.

Fewer Index, Parametric Triggers

Meanwhile, the market continues its move away from index triggers (including parametric triggers), preferring indemnity-based structures, the report said. Of outstanding issuance on a 2018 year-to-date basis, 60 percent of bonds by capacity are triggered by issuers’ own losses compared to just 40 percent in 2008.

The available premium or risk-spread discount for index-triggered instruments has typically declined relative to indemnity triggers and, as a result, the share of index-triggered transactions has fallen, the report said, noting that this is a good-news story because it reflects improved data, transparency and understanding of indemnity risk, rather than any inherent discomfort with index triggers.

Nevertheless, the report said, index triggers remain important, especially for retrocession cat bonds and industry loss warrants (ILWs). In addition, when underlying data quality is poor or the coverage is exceptionally difficult to model, index-trigger discounts often rise considerably, making the structures more attractive, as seen with recent sovereign natural catastrophe and extreme mortality ILS deals, the report explained.

While the trend away from non-indemnity triggers is likely to continue, they are still important for some transactions, said William Dubinsky, managing director and head of ILS at Willis Re.

“As the insurance, reinsurance and ILS markets work together to solve new problems for insureds, index triggers are a very useful tool to consider,” Dubinsky said.

“They may not, on their own, close the global protection gap, dramatically grow the ILS market or solve all cedent problems, but with creativity, unbiased advice and sustained effort, they can still have a meaningful impact,” he added.

Source: Willis Re

*This story appeared previously in our sister publication Insurance Journal.

Topics Willis Towers Watson