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The cat bond market is strong when insurance prices rise



New bond issuance reached a record high of $ 8.5 billion in the first half of 2021, driven by additional capital inflows to the sector and new sponsors drawn for the new capital.

The first half of the year also had a significant number of maturities, which returned capital to investors for relocation in the sector, sources say.

In addition, reinsurance buyers sometimes see cost savings by using non-traditional coverage, they say.

"What really drives the market is the fact that (insurance-linked securities) managers have raised more capital to invest in disaster bond strategies over the past 18 months," said Paul Schultz, Chicago-based CEO of Aon Securities, a device in Aon PLC.

"We could not have reached the $ 8.5 billion if we did not have the new $ 2 billion capital inflow. It is on top of maturities that returned capital to investors," said Judy Klugman, New York-based head of ILS at Swiss Re Capital Markets, the broker-dealer's subsidiary of Swiss Re Ltd.

Ms. Klugman added that the sector was "equity-oriented" and attracted new sponsors as well as returning players.

Among the new sponsors was Vermont Mutual Insurance Group, with its Baldwin Re 2021

-1 A issue, which secured $ 150 million in coverage for U.S. winds, earthquakes, severe thunderstorms and forest fires on indemnity triggers.

Tougher conditions in insurance and reinsurance markets have made disaster bonds more attractive to companies seeking reinsurance.

The price environment has been a leading factor in driving the emergency bond market, according to Philipp Kusche, New York-based global head of ILS and Capital Solutions for TigerRisk Partners Inc.

"Disaster bonds have been attractive for the past eight months and have been competitive with other options that people had on the traditional reinsurance side," Kusche said.

Cost will always be a factor in a sponsor's decision, and rates vary between traditional reinsurance and I LS coverage, Klugman said.

"They are actually two separate markets, and sometimes one or the other becomes more or less expensive," she said.

Increased pricing for traditional coverage is "really a primary driver" for this year's record for the first half of the year, "said Schulz.

happens to be at a point in the cycle where ILS leads the traditional market, and I think ILS will continue to be more competitive than traditional reinsurance until 2022, he says.

draws new and repeat sponsors, who in some cases close larger transactions, Schultz said.

One of them is the United Services Automobile Association in San Antonio, which issued four parts of its company Residential Re 2021-1, each of which secures $ 100 million in tropical cyclone coverage; earthquake, including fire after; severe thunderstorm; winter storm; wildfire; volcanic eruption; meteorite impact; flood losses from bee policies and tenant policies; and other hazards, on a replacement trigger.

USAA is one of the top five sponsors in the history of the ILS market, according to Swiss Re, and has sponsored more than $ 8.5 billion in issues since 1997.

Expectations are for a continued robust catastrophe bond market.

"We believe that momentum is likely to provide good tailwinds into the second half of the year and really into 2022," Schultz said.

"We have high expectations for a new issue for the fourth quarter," says Klugman, adding that the third quarter is usually slow for the ILS market.

"You tend to see investors distribute more capital after positive return years, which creates even more basis for an active 2022, ”said Schultz.

Both 2019 and 2020, catastrophic losses decreased compared to 2017 and 2018, when the United States suffered several eight-digit losses, such as Hurricanes Harvey, Irma and Maria 2017. [19659002]


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