Gary Martucci, S&P reports from SIFMA’s Insurance and Risk Linked Securities (IRLS) Conference in New York, where the discussion centered on the record-setting insurance linked securities (ILS) and catastrophe bond markets. Here, Standard and Poor’s Director Gary Martucci discusses the drivers of growth in alternative capital and if it will continue.

According to Mr. Martucci, he does expect 2015 to be an active year for CAT bond issuance. While issuance may not be as high as last year, which included two very large transactions, he sees “a very active year given the current interest from capital markets and investors.”

Mr. Marticcci says the key drivers for ILS issuance remain the same as in the past. It is a diversified asset with an attractive yield. Interest rates are not as important to investors for as the diversification is.   “What would drive business away from CAT bonds is if a series of un-modeled (losses)…That would cause people to question the modeling.”   If an event happens, rates would harden and you will end up getting a higher rate of return.

Risk management is a primary driver of ILS issuance. Many are looking at events that are 1 in 50 or 1 in 100 year events…so risk modeling is a significant input into the ILS space.”

According to Mr. Marticci, S&P expects the ILS market to grow. There is more capital that can be put to work, and more risks that have yet to be securitized. Once the models become more familiar in the investment community, people will put money to work there. This is a growing market…”

You’ll also find more on the Insurance and Risk Linked Securities Conference at the SIFMA website, and the On Demand Library.

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