Insurance-linked securities reached their second-highest issuance levels ever in 2018, though the fourth quarter ended with a whimper.

Total issuance for the year reached $9.7 billion through 29 transactions and 49 tranches, Swiss Re said in the February 2019 edition of its “Insurance-Linked Securities market update.” That places the year only behind 2017’s $10.5 billion in ILS issuance, according to the report.

Much of the 2018 market momentum took place in the first six months of the year, with ILS issuance totaling more than $7.3 billion, including $4 billion in the second quarter. But Swiss Re said the 2018 third quarter was robust, too, with issuance hitting near-record levels at $1.55 billion. That compares to $780 million in the 2017 third quarter.

Swiss Re credited two new sponsors with making the 2018 third quarter so successful: NFIP and PG&E, both of which issued their first catastrophe bonds to cover, respectively, pure flood and pure wildfire perils.

While 2018 itself was a successful year, the 2018 fourth quarter was more subdued, with ILS issuance hitting $536 million. The quarter featured a new sponsor – Sempra – which entered the market with a pure wildfire transaction. But even with that new sponsor, the quarter tracked as having the lowest Q4 ILS issuance since 2008, when no new bonds came out at the height of the financial crisis, Swiss Re noted.

For Q4 2018, the low level of ILS issuance is partly due to lower volumes of European sponsors accessing the market compared to previous years, Swiss Re said. As well, the reinsurer noted that “a novel atmospheric perils transaction” was announced during the 2018 fourth quarter, but it was delayed.

The 2018 second half produced $2.09 billion in new ILS issuances, Swiss Re noted.

Other report highlights:

  • The 2017 catastrophe events appear to have had little impact on overall prices for 2018.
  • Market volatility spiked in the 2018 second half, due to Hurricanes Florence and Michael, and the California wildfires. Swiss Re noted that a number of varieties of cat bonds were exposed to potential losses as a result. The report also asserted that this showed the ILS market matters to investors “by providing consistent liquidity while also demonstrating that committed investors still find value in this diversifying asset class.”

Source: Swiss Re