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Insurance-Linked Securities Market Update Insurance-Linked Securities market update Volume XXIX, August 2018 2 Swiss Re Insurance-Linked Securities market update – August 2018 Table of contents Introduction 03 New issuance 06 Trading and relative value 11 Swiss Re Global Cat Bond Total Return Index 17 New sponsors 18 Deal Focus: Pacific Alliance 19 Sector data 20 Swiss Re Insurance-Linked Securities market update – August 2018 1 2 Swiss Re Insurance-Linked Securities market update – August 2018 Introduction The first half of 2018 demonstrated once again that the Insurance-Linked Securities (ILS) market is effective in providing re/insurance protection, even in years following frequent and sizeable catastrophic events. Estimates reported by Swiss Re Institute’s sigma placed insured losses for global natural catastrophe events at USD 136.06bn in 20171, an 186% increase from USD 47.56bn insured losses in 2016. During 1Q, USD 3.28bn of 144A notes were issued across six transactions covering extreme morbidity, earthquake and US multi-peril. The historically strong 2Q saw USD 4.029bn notional issued across 14 separate transactions, mostly covering US multi-peril, or state-specific wind coverage, leaving 1H 2018 with a total of USD 7.309bn in new issuance. As investors patiently awaited loss developments for the latter half of 2017’s catastrophic US hurricane and wildfire events, appetites were uninhibited by potential losses and investors continued to allocate capital to ILS at a relatively stable price during the first half of the year. Along with seasoned sponsors, five new sponsors sought ILS coverage to help close the protection gap or complement traditional reinsurance in 1H 2018. 1As of June 30, 2018 Swiss Re Insurance-Linked Securities market update – August 2018 3 Figure 1 Deal name Settlement date Notional (m) Peril1,2 New issuance Vitality Re IX Series 2018 January 29, 2018 USD 140 Extreme Morbidity January 1, 2018–June 30, 2018 Class A Vitality Re IX Series 2018 January 29, 2018 USD 60 Extreme Morbidity Class B IBRD CAR 116 February 7, 2018 USD 500 Chile EQ IBRD CAR 117 February 7, 2018 USD 400 Colombia EQ IBRD CAR 118 Class A February 7, 2018 USD 160 MEX EQ IBRD CAR 119 Class B February 7, 2018 USD 100 MEX EQ IBRD CAR 120 February 7, 2018 USD 200 Peru EQ Nakama Re 2018-1 Class 1 March 1, 2018 USD 500 JP EQ Nakama Re 2018-1 Class 2 March 1, 2018 USD 200 JP EQ Kizuna Re 2018-1 Class A March 28, 2018 USD 150 JP EQ Kizuna Re 2018-1 Class B March 28, 2018 USD 50 JP EQ Akibare Re 2018-1 Class A March 28, 2018 USD 220 JP WS, JP EQ Akibare Re 2018-1 Class B March 28, 2018 USD 100 JP WS Sanders Re 2018-1 Class A March 29, 2018 USD 500 US WS, EQ, ST, Fire, Other Peril Manatee Re II 2018-1 Class A April 3, 2018 USD 160 US WS, US ST Manatee Re II 2018-1 Class B April 3, 2018 USD 40 US WS, US ST Armor Re II 2018-1 April 13, 2018 USD 100 US WS, EQ Integrity Re 2018-1 Class A April 23, 2018 USD 75 FL WS Integrity Re 2018-1 Class B April 23, 2018 USD 4 FL WS Kendall Re Series 2018-1 April 25, 2018 USD 225 US WS, US EQ, US WF, EU WS Pelican IV Re 2018-1 Class A April 27, 2018 USD 100 LA WS Kilimanjaro Re 2018-1 A-1 April 30, 2018 USD 62.5 US EQ, WS; CAN EQ, WS Kilimanjaro Re 2018-1 B-1 April 30, 2018 USD 200 US EQ, WS; CAN EQ, WS Kilimanjaro Re 2018-2 A-2 April 30, 2018 USD 62.5 US EQ, WS; CAN EQ, WS Kilimanjaro Re 2018-2 B-2 April 30, 2018 USD 200 US EQ, WS; CAN EQ, WS Caelus Re V 2018-1 Class A May 10, 2018 USD 125 US WS, EQ, ST, WT, WF, VE, MI and Other Peril Caelus Re V 2018-1 Class B May 10, 2018 USD 75 US WS, EQ, ST, WT, WF, VE, MI and Other Peril Caelus Re V 2018-1 Class C May 10, 2018 USD 175 US WS, EQ, ST, WT, WF, VE, MI and Other Peril Caelus Re V 2018-1 Class D May 10, 2018 USD 75 US WS, EQ, ST, WT, WF, VE, MI and Other Peril Residential Re Series 2018-1 May 14, 2018 USD 100 US WS, US EQ, US ST, Class 11 US WT, US WF, US MI, US VE, US Others 4 Swiss Re Insurance-Linked Securities market update – August 2018 Deal name Settlement date Notional (m) Peril1,2 Residential Re May 14, 2018 USD 200 US WS, US EQ, US ST, Series 2018-1 Class 13 US WT, US WF, US MI, US VE, US Others Everglades Re II Ltd. May 15, 2018 USD 250 FL WS Series 2018-1 Class A Bowline Re Ltd. 2018-1 May 16, 2018 USD 250 US WS, EQ, ST; CAN Class A WS, EQ, ST Long Point Re III Ltd. May 24, 2018 USD 500 US WS, EQ, ST, WS 2018-1 Class A Alamo Re Ltd. Series May 30, 2018 USD 400 TX WS 2018-1 Class A Atlas Capital UK 2018 PLC May 31, 2018 USD 300 US WS, US EQ, EU WS Frontline Re Ltd 2018-1 June 26, 2018 USD 250 FL WS, SC WS, NC WS, Class A AL WS Frontline Re Ltd 2018-1 June 26, 2018 USD 100 FL WS, SC WS, NC WS, Class B AL WS Source: Swiss Re Capital Markets (See Risk factors on p. 23) 1 US = United States, CAN = Canada, EU = Europe, JP = Japan, AUS = Australia, NM = New Madrid, FL = Florida, HI = Hawaii, LA = Louisiana, NY = New York, TX = Texas, US VI = US Virgin Islands, PR = Puerto Rico, SC = South Carolina, NC = North Carolina, AL = Alabama, MEX = Mexico 2 WS = Wind storm, EQ = Earthquake, ST = Severe thunderstorm, WT = Winter storm, WF = Wildfire, VE = Volcanic eruption, MI = Meteor impact Swiss Re Insurance-Linked Securities market update – August 2018 5 New issuance While not quite reaching the issuance levels of 1H 2017’s USD 8.4bn, the first half of 2018’s new issuance closely trailed behind with USD 3.28bn and USD 4.029bn for 1Q and 2Q, respectively, bringing the 1H 2018 total to USD 7.309bn. Notably, 1Q 2018 was the largest issuance for any 1Q on record, and 2Q 2018 issuance was second only to 2Q 2017. That said, issuance for the first and second quarters are generally larger than the latter half of the year, with sponsors seeking coverage ahead of the US hurricane and severe thunderstorm season. Figure 2 Historical quarterly issuance 12 000 in USD m 10 000 1351 780 8 000 2049 2075 1820 6 000 316 1525 1847 1888 6230 4029 650 1621 2115 2234 4 000 2395 803 4492 1989 925 855 2962 320 3525 1675 232 2095 800 2 000 3303 1024 694 1872 2074 411 3280 190 2100 742 810 2070 2170 1493 1410 1694 1268 1015 736 821 616 575 670 0 20 300 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Q1 Q2 Q3 Q4 Source: Swiss Re Capital Markets; as of June 30, 2018 The ILS market saw 20 new deals priced across 38 different tranches during 1H, with an average deal size of roughly USD 365m, far surpassing the prior record set in 2014 of USD 329m. Overall, notional outstanding in the ILS market was USD 29.11bn at the end of 1H 2018, up 8.39% from the year-end total in 2017 of USD 26.85bn. 6 Swiss Re Insurance-Linked Securities market update – August 2018 Figure 3 Yearly issuance and outstanding ILS bonds 30 USD bn 29.11 26.9 Outstanding from previous years 25 24.1 23.9 24.1 Issued 20 20.2 16.3 21.2 16.0 15.8 15 15.1 14.1 17.4 18.2 14.0 13.9 13.7 12.8 9.8 10 10.4 8.5 8.9 10.5 9.3 4.7 11.1 6.6 10.5 5 4.84.8 4.1 2.2 8.2 7.31 2.8 7.4 2.4 3.7 6.6 6.3 6.5 1.9 5.7 5.0 5.9 0.91.0 0.8 1.4 1.8 3.5 4.4 0.7 0.2 0.2 2.6 2.5 3.0 0 0.7 0.7 0.8 1.1 1.0 1.0 1.1 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Issued Outstanding from previous years Source: Swiss Re Capital Markets; as of June 30, 2018 New-issuance spreads stabilized after experiencing a short lived widening period in the aftermath of 2017’s catastrophe events. The weighted-average spread for cat bonds within the Swiss Re Global Cat Bond Index declined from 5.10% at the end of 2017 to 4.91% at the end of 1H 2018. Weighted average expected loss (EL) decreased slightly from year-end 2017’s 2.49% to 2.47% at the end of 1H 2018. While there were conversations about market prices hardening after last year’s events, the first half of 2018 proved that investors continue to find the ILS space attractive. Swiss Re Insurance-Linked Securities market update – August 2018 7 New issuance 10 Figure 4 Historical EL’s and stated spreads of the Swiss Re Global Cat Bond Total Return by 8 component 6 4 2 0 2002 2004 2006 2008 2010 2012 2014 2016 2018 Stated Spread EL Source: Swiss Re Capital Markets; as of June 30, 2018 In 1Q 2018, there was a total of USD 200m of primary issuance covering extreme morbidity, USD 1.36 bn of Latin American earthquake (Pacific Alliance), USD 900 m of Japanese earthquake, USD 220m of Japanese multi-peril, USD 100m of Japanese wind storm, and USD 500m of US multi-peril.
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