ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market...

11
ILS Market Update November 2018 Index triggers: no panacea but still helpful

Transcript of ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market...

Page 1: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

ILS Market Update

November 2018

Index triggers: no panacea but still helpful

Page 2: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

Definition and uses of index triggers

Index triggers are based less on actual loss than on a proxy for actual loss. Proxies

include industry loss indices based on PERILS or PCS figures, pure parametric or

parametric index triggers, modeled loss triggers or hybrids, or population mortality and

morbidity statistics.

As a technical matter, most “index triggers” are in reality implemented as double triggers

where a recovery only occurs if the index trigger is met and the cedant suffers actual

losses as well. In that case, they are in fact contracts of indemnity and generally treated

as reinsurance for legal and accounting purposes.

Pros and cons

Index triggers have various pros and cons. The primary advantages include enhanced

speed of calculation and recovery, transparency and ease of understanding for all parties.

These attributes can potentially save cedants money by accessing capital more efficiently.

The primary potential drawbacks are poor design and basis risk. If not thoughtfully

designed, index triggers can be more rather than less complex and slower rather than

faster to determine. In fact, a poorly designed trigger can even enhance rather than

mitigate dispute risk and make accurate modeling more rather than less difficult.

Practically speaking, basis risk means a mismatch between expected recoveries and

actual recoveries. It is not exclusive to index-triggered ILS deals. For example, the

application of an exclusion or an hours’ clause in a reinsurance contract based primarily

on actual losses can also result in a mismatch.

ILS Market Update

2

Q3 2018 market perspective: Index triggers: no panacea but still helpful

One constant in the ILS market going

back nearly 25 years is the steady

stream of cheerleaders claiming index-

triggered ILS can unlock massive

amounts of capacity, grow the

alternative capital market and close the

protection gap. Notwithstanding these

claims, the market has largely moved

away from rather than toward index

triggers and in our view, will likely

continue to do so. That being said, there

remain some excellent use cases for

index triggers.

“Most “index

triggers” are in

reality

implemented as

double triggers

where a

recovery only

occurs if the

index trigger is

met and the

cedant suffers

actual losses as

well.”

“The primary

potential

drawbacks are

poor design and

basis risk.”

Page 3: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

Most risk managers and ceded reinsurance professionals care more about a shortfall in

expected recoveries than in the potential for an over-recovery. A shortfall can even risk

cedant insolvency. Basis risk can increase the required limit purchased for a given risk

management objective thereby nullifying the discounted spread otherwise available for

using an index. It is this trade-off between potential savings and basis risk that seems to

drive most decisions for or against index triggers. Unbiased advice from intermediaries is

very helpful here.

General trend away from index triggers

In practice, outside of retro, as the available premium or risk spread discount for index

triggers has declined relative to indemnity triggers, the share of index trigger transactions

has declined as evidenced by the market share trend illustrated below. Trends beyond the

cat bond market are similar. This is a good news story. It reflects improved data,

transparency, and understanding of indemnity risk rather than any inherent discomfort

with index triggers.

Some exceptions

Notwithstanding the general trends and issues raised above, index triggers remain

important in some special situations. First, index triggers remain common for retro,

whether for cat bonds or ILWs. Second, where the underlying data quality is poor or the

coverage is exceptionally difficult to model (e.g., business interruption for certain classes

of business), the discount for an index trigger can rise considerably making an index

trigger more attractive. Recent sovereign nat cat and extreme mortality ILS deals come to

mind. Another example is Japan, where earthquake derivatives are popular with large

corporates to hedge their risk.

Indemnity Index

ILS Market Update

3

Q3 2018 market perspective: Index triggers: no panacea but still helpful

“A shortfall can

even risk

cedant

insolvency.”

60%

40%

34%

66%

Year-end

non-life

capacity

outstanding

($ billions):

2008

$11.8

2018 YTD

$27.8

Evolving market share of indemnity and index triggers

“The available

premium or risk

spread discount

for index

triggers has

declined

relative to

indemnity

triggers.”

“Index triggers

remain

important in

some special

situations.”

Source: Willis Towers Watson Securities Transaction Database as of 09/30/2018. Aggregate data excludes private ILS deals.

Page 4: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

ILS Market Update

4

Q3 2018 market perspective: Index triggers: no panacea but still helpful

“Intermediaries

also

increasingly

design relatively

more refined

and

commoditized

index triggers

that both reduce

basis risk and

result in broad

syndication

achieving the

best price.”

Outlook

Some say that if index triggers drive down costs enough, they can reduce the protection

gap substantially, notwithstanding the resulting basis risk. Theoretically, this is possible.

The evidence thus far suggests a more limited benefit - as you have to deliver a product

people will actually buy. Yes, index triggers can help close the gap, but they will not be

transformative on their own. Wishful thinking cannot overcome math and economics.

On a more optimistic note, the ability to measure and manage basis risk continues to

improve. Intermediaries and other unbiased advisors work more and more with insureds

and cedants to understand the trade-offs inherent in index triggers and to manage basis

risk. Managing basis risk occurs, for example, through better overall design of a

reinsurance program explicitly taking basis risk for a single index protection into account.

Intermediaries also increasingly design relatively more refined and commoditized index

triggers that both reduce basis risk and result in broad syndication achieving the best

price. This design process prevents a handful of large self-interested reinsurers and ILS

managers from foisting bespoke triggers on unsuspecting buyers, in which customization

serves primarily to thwart competition and raise rates rather than to achieve any

meaningful advantage for buyers.

* * * * *

In sum, as the insurance, reinsurance and ILS markets work together to solve new

problems for insureds, index triggers are a very useful tool to consider. They may not on

their own close the protection gap, dramatically grow the ILS market, or solve all cedant

problems - far from it. Nevertheless, with creativity, unbiased advice and sustained effort,

they can still have a meaningful impact.

Page 5: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

The third quarter of 2018 saw five underwritten widely distributed non-life ILS issues

totaling approximately $1.6 billion of capacity, surpassing Q3 2013’s record of

approximately $1.4 billion. This record-breaking Q3 issuance seems to put this year’s $8.7

billion year-to-date issuance (as of Q3-end) on track to approach or even exceed last

year’s record of $9.7 billion.

Of the roughly $1.6 billion issued this past quarter, $200 million will provide Peak Multiperil

protection and $650 million will provide U.S. Earthquake protection. The remainder will

cover new perils, with $500 million providing protection from Flood resulting from U.S.

Wind and $200 million providing California Wildfire Liability protection.

In Q3 2018, AXIS secured additional capacity through Northshore Re II. A key difference is

that unlike prior Northshore Re deals, it will also provide protection against European Wind

exposure in addition to the protection from U.S. Wind and U.S. Earthquake the prior deals

provided. The tranche features an industry index trigger on an annual aggregate basis. It is

also noteworthy that this tranche will feature a four-year term, up from three years in the

prior series. The issue has an expected loss of 4.86% with a risk spread of 7.70% that fell

below its initial guidance of 8.00% to 8.50%. The bond was upsized 33% from an initial

guidance of $150 million to $200 million.

Kaiser Permanente returned to the cat bond market as a repeat corporate sponsor to

access additional capacity through Acorn Re as its 2015 series neared maturity. This

tranche provides per occurrence protection from North American Earthquakes with a

parametric trigger. Earthquake box locations lie along the West Coast of the U.S. and

extend into parts of Sonora Mexico, British Columbia and the Pacific Ocean. The trigger

has four levels based on severity of magnitude. Northern California contributes to more

than 80% of the initial modeled expected loss of 0.80% (compared to an initial modeled

expected loss of 0.74% for the 2015 series). The deal was initially marketed with a

guidance of $300 million (the same size as the matured 2015 series) and upsized 33% to

$400 million. This tranche priced with a risk spread of 2.75%, which is lower than the

3.40% for the 2015 series.

Following substantial loses from 2017 named storm events, the National Flood Insurance

Program (NFIP) added to its relatively new private reinsurance program with its first cat

bond capacity via two tranches of notes issued through FloodSmart Re. The NFIP is a

federal government-operated flood insurance program administered by the U.S. Federal

Emergency Management Agency that was formed to sustain the availability of voluntary

flood insurance. Historically, funding shortfalls that exceed premiums collected have been

financed by the U.S. Treasury. In addition to featuring a first time sponsor, this transaction

marks the first known cat bond issuance using KatRisk as modeling agent. KatRisk

specializes in modeling flood and wind risk in the U.S. and Caribbean. The notes feature a

three-year term providing indemnity protection on a per-occurrence basis. Both tranches

upsized and priced at the bottom of initial guidance with the $325 million Class A tranche

paying a risk spread of 11.25%, while the $175 million Class B tranche will pay 13.50%.

ILS Market Update

5

Q3 2018 ILS market issuance overview

“This record-

breaking Q3

issuance seems

to put this

year’s $8.7

billion year-to-

date issuance

on track to

approach or

even exceed

last year’s

record of $9.7

billion.”

“The National

Flood Insurance

Program added

to its relatively

new private

reinsurance

program with its

first cat bond

capacity.”

“Kaiser

Permanente

returned to the

cat bond market

as a repeat

corporate

sponsor to

access

additional

capacity

through Acorn

Re.”

Page 6: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

Non-life Q3 2018 ILS issuance(a)

Source: Willis Towers Watson Securities Transaction Database as of 09/30/2018. Aggregate data exclude most private ILS deals.

(a) All issuance amounts reported in or converted to USD on date of issuance. EL for HU deals is based on WSST conditioned catalog for AIR and medium-term catalog for RMS

(b) If fronted, beneficiary listed if known

ILS Market Update

6

Q3 2018 ILS market issuance overview

Q3 2018 also featured a first time corporate sponsor, Pacific Gas and Electric (PG&E),

bringing a new peril to the cat bond market through Cal Phoenix Re. PG&E is a U.S.

natural gas and electric energy company that provides service in Northern and Central

California. Cal Phoenix Re will provide California Wildfire Liability protection for losses

caused by power, transmission or distribution systems owned or operated by PG&E. This

deal will feature a three-year term with an indemnity trigger on an annual aggregate basis

and has embedded call options. With a modeled loss of 1.01%, the single tranche will pay

a risk spread of 7.50%. It is worth noting that the 2017 Thomas Fire would have resulted

in a total loss for this tranche.

The California Earthquake Authority effectively renewed its Ursa Re 2015-1 B issue that

matured on September 15, 2018, through Ursa Re 2018-1 D. The single $250 million

layer will provide about three years of indemnity protection on an annual aggregate basis

from California Earthquakes. The new deal features a 2.87% expected loss (modeled by

EQECAT) and will pay a risk spread of 5.10% after being marketing with a range of

5.00% to 5.25%.

“Q3 2018 also

featured a first

time corporate

sponsor, Pacific

Gas and

Electric,

bringing a new

peril to the cat

bond market.”

($ in millions)

Sponsor(b) Issuer/Tranche Issue Maturity Amount EL Spread Basis Risk Trigger

CEA Ursa Re 2018-1 D Sep-18 Sep-21 $250 2.87% 5.10% Annual AGG U.S. Quake Indemnity

PG&E Cal Phoenix Re 2018-1 A Aug-18 Aug-21 200 1.01% 7.50% Annual AGG California Wildfire Liability Indemnity

NFIP FloodSmart Re 2018-1 A Jul-18 Aug-21 325 4.94% 11.25% OCC U.S. Wind Indemnity

NFIP FloodSmart Re 2018-1 B Jul-18 Aug-21 175 6.32% 13.50% OCC U.S. Wind Indemnity

Kaiser Permanente Acorn Re 2018-1 A Jul-18 Nov-21 400 0.81% 2.75% OCC U.S. Quake Parametric

AXIS Northshore Re II 2018-1 A Jul-18 Jul-22 200 4.86% 7.70% Annual AGG Peak Multiperil Industry Index

Q3'18 Total: $1,550

Page 7: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

ILS Market Update

7

Interview: Matthew Ball – Senior Director Insurance Consulting

Technology and Global ILS Consulting practice

“The loss

activity over the

last couple of

years has

certainly

presented some

challenges and

opportunities…

Valuation of

illiquid (level 3)

assets has

been one of the

challenges.”

Matthew Ball – Senior Director

Insurance Consulting Technology and

Global ILS Consulting practice

at Willis Towers Watson

How did you first get involved in the ILS space?

Before coming to Bermuda in 2010, I worked in the

London office for a number of years in the insurance

actuarial consulting practice of one of the

predecessor firms of Willis Towers Watson. It was

there during the mid-2000s that I first got involved in

a few alternative risk transfer projects, as the space

was called at the time. These involved securitization

of some pretty esoteric asset classes – venture

debt, pharmaceutical research and development

and carbon credits – where the structure included

both insurance and capital markets solutions. These

were challenging but very interesting projects.

There was no standard actuarial playbook in terms

of modeling these risks – and certainly no standard

vendor model – so you had to go back to first

principles.

After coming to Bermuda in 2010, to lead the Insurance Consulting and Technology (ICT)

practice here, I naturally got involved in more “traditional” ILS projects given Bermuda’s

leading position as a reinsurance and ILS market, working for various stakeholders (ILS

funds, sidecars, end investors, cedants and cat bonds) across various areas (valuation,

governance reviews, pricing and portfolio management and software solutions). This

involvement has grown over time, together with the growth in the ILS market, and a

number of years ago I led the formation of the ILS Consulting practice within ICT to tailor

our products and services to the needs of the ILS industry.

What sort of work do you do with ILS investors (besides in cat bond transactions)?

Has the loss activity the last few years presented any unique challenges or

opportunities? How do you see things changing in light of what has transpired?

Our ILS Consulting practice within ICT works with ILS funds and end investors providing

advice, solutions and software to help clients manage risk and capital, improve business

performance and create competitive advantage across a wide variety of situations

including independent third-party valuation, pricing, financial modeling and operational

due diligence reviews.

The loss activity over the last couple of years has certainly presented some challenges

and opportunities. We touched on a few of these aspects at a presentation we gave at the

recent ILS Convergence conference in Bermuda earlier in October of this year.

Valuation of illiquid (level 3) assets has been one of the challenges. Alternative

reinsurance capital has grown from $23 billion at the end of 2011, the last year of

significant loss activity before 2017, to $88 billion at the end of 2017; private ILS, such as

“collateralized reinsurance”, has been a key driver of this growth. So valuation of these

assets has become more important from an overall market perspective.

Page 8: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

ILS Market Update

8

Interview: Matthew Ball – Senior Director Insurance Consulting

Technology and Global ILS Consulting practice

“The 2017

events were a

reminder that

valuation

techniques

need to adapt to

the context.”

“Currently, only

a third of ILS

funds are using

independent

third-party

valuation for

illiquid (level 3)

assets.”

“Good

governance and

transparency

are grease for

the wheels of

operations

within the ILS

industry and will

ultimately assist

with faster

growth.”

Given that ILS funds usually report NAVs on a monthly or more frequent basis, there can

be estimation challenges early on after loss events. This was illustrated in the aftermath of

Hurricane Maria, where there were estimates from two of the property cat model vendors

with non-overlapping ranges. When cedant estimates started to come in, some initial

cedant estimates were closer to the ultimate estimate than others. There is nothing

particularly new in some of these issues. The 2017 events were a reminder that valuation

techniques need to adapt to the context, for example, the type of event (e.g., hurricane,

wildfire, earthquake), time after the event (e.g., use of exposure methods, claims

development methods or a blend), local legal and claims environment (e.g., assignment of

benefits and demand surge in Florida post-Irma) and cedant valuation philosophy.

Overall, we continue to see valuation practices improve over time. It is better than the

“Wild West” we observed a few years back, but there is still work to do on improving some

of the technical aspects (e.g., valuation of losses close to attachments points or

aggregate excess of loss contracts), the operational efficiency of internal valuation

processes post-event and governance and overall transparency. Currently, only a third of

ILS funds are using independent third-party valuation for illiquid (level 3) assets (per Willis

Towers Watson’s recent ILS survey), although we have seen this demand increasing. In

addition, we have seen a growing demand from ILS funds for our valuation technology

and software solutions to improve operational efficiency. After the events of 2017, and

with a growing desire for more transparency in the industry, we anticipate the governance

demands from internal and external stakeholders will continue to increase. Funds that can

demonstrate a more robust, transparent and efficient valuation process than their peers,

all else being equal, should be able to assume more market share over time.

Trapped collateral and liquidity have also proved challenging to market participants over

the last couple of years. Despite the events of 2017 and the material amounts of trapped

collateral, the market still managed to more than reload on January 1, 2018. Nonetheless,

we did see an increase in questions from our clients around trapped collateral; for

example: how much collateral was trapped and for how long? Should we move from more

of a direct model to a fronting model? How can we improve the collateral release

mechanisms? So the opportunity here is for the funds that can manage their collateral

more efficiently and potentially a broader market opportunity to allocate capital to

collateral release solutions. Also, there seems to be a general market desire to try to

improve some of the underlying collateral release mechanism structures.

If you could change one thing about the ILS market, what would it be and why?

One particular area we focus on is helping clients improve the governance and

transparency of their operations; for example, the loss reserve specialist and claims

reviewer roles performed for cat bonds, or the third-party independent valuation agent

roles performed for ILS funds, sidecars and end investors. The Standards Board for

Alternative Investments is also pushing for greater transparency in the ILS space. Overall,

the industry has progressed in recent years in terms of governance and transparency, yet

there is still work to be done as discussed above. I would like to see this progress quicker.

Good governance and transparency are grease for the wheels of operations within the

ILS industry and will ultimately assist with faster growth as more and more investors

become attracted to the ILS space.

Page 9: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

ILS Market Update

9

Q3 2018 ILS market statistics

Source: Willis Towers Watson Securities Transaction Database as of 09/30/2018. Aggregate data excludes private ILS deals.

(c) All issuance amounts reported in or converted to USD on date of issuance. Outstanding amounts adjusted for actual principal losses.

Par outstanding by expected loss at issuance Par outstanding by risk peril

Total: $25.5 billion(b)Total: $27.8 billion(a) Total: $25.5 billionTotal: $27.8 billion

Peak Multiperil U.S. Wind U.S. Quake

Euro Wind

Japan Quake

Japan Wind Others Non-Life 2.51% – 4.50%

<0.75% 0.76% – 1.50% 1.51% – 2.50%

>4.51%

Non-life ILS issuance by quarter (2014 – 2018)(c)

($ in billions)

Non-life capacity issued and outstanding by year(c)

Source: Willis Towers Watson Securities Transaction Database as of 09/30/2018.

(a) In aggregate, 66% of all capacity outstanding exposed to U.S. Wind.

(b) In aggregate, 66% of all capacity outstanding exposed to U.S. Wind.

($ in billions)

Issu

ed

cap

acit

y/

cap

acit

y o

uts

tan

din

g Nu

mb

er o

f deals

55%52%

11%14%12%

16%

8% 8% 3% 1% <1%

4%

11% 5%

0%

10%

20%

30%

40%

50%

60%

Q3'18 Q3'17

13%16%

28% 28%21% 22%22% 22%

15% 12%

0%

10%

20%

30%

40%

50%

60%

Q3'18 Q3'17

$1.2

$4.5

$0.3

$2.1$1.5

$2.7

$0.7

$1.4$2.0

$1.0 $0.9

$2.1$1.7

$6.2

$0.5

$1.3

$3.1

$4.0

$1.6

0.0

1.5

3.0

4.5

6.0

$7.5

Q1 Q2 Q3 Q4

2014 2015 2016 2017 2018

$4.6

$7.2

$2.7 $3.4$4.8 $4.3

$5.9$7.1 $8.0

$6.2 $6.1

$9.7 $8.7$8.4

$14.1$11.8 $12.3 $12.4 $12.7

$15.2

$18.7

$22.9 $22.5 $22.8

$25.5$27.8

0

5

10

15

20

25

30

0

5

10

15

20

25

$30

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018YTD

Issued capacity Outstanding at year-end # of deals

Page 10: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

6.3% 6.3% 5.6%

6.1% 5.9% 5.9% 6.2% 6.3%

7.5% 7.6% 7.3%

6.4%

5.5% 5.4% 6.0% 6.1% 6.1%

6.4%

2.3% 2.3% 2.0%

2.4% 2.5% 2.5% 2.8% 2.8%

3.8% 3.9% 3.9% 3.4%

2.8% 2.7% 3.1% 3.0% 3.1% 3.2%

0.0%

3.0%

6.0%

9.0%

0.0%

3.0%

6.0%

9.0%

Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18

Secondary market trading overview

Ris

k p

rem

ium E

xp

ec

ted

los

sR

isk

pre

miu

m Ex

pe

cte

d lo

ss

ILS Market Update

10

Q3 2018 ILS market statistics

Source: Willis Towers Watson Securities Transaction Database as of 09/30/2018. Aggregate data excludes private ILS deals.

LTM = Last 12 months. Aggregate data are for primary issuance and do not reflect secondary trading.

Q3 2018 saw very light secondary trading. There were intermittent lists of bonds being

moved in small size, with very few meaningfully sized trades. Investors lamented the

Irma creep, and it is interesting to note that the traditional cat bond bounce for seasonality

was relatively muted. We anticipate traders will look optimistically towards the new

primary issuances in Q4, which will ultimately help the secondary market settle into

appropriate trading ranges.

Weighted average risk premium Weighted average expected loss

“Investors

lamented the

Irma creep, and

it is interesting

to note the

traditional cat

bond bounce

for seasonality

was relatively

muted. ”

Quarterly LTM non-U.S. Wind exposed weighted average risk premium and expected loss

Quarterly LTM U.S. Wind exposed weighted average risk premium and expected loss

2.7% 2.6%

3.4% 3.3% 3.5% 3.7%

2.9% 3.1% 3.4%

2.8%

3.7% 3.8% 3.9%

4.5% 4.3%

3.7% 3.5% 3.6%

0.8% 0.7%

1.3% 1.3% 1.3% 1.5%

0.9% 1.0% 1.0% 0.7%

1.3% 1.4% 1.8%

2.4% 2.4% 2.0% 1.9%

1.7%

0.0%

2.0%

4.0%

6.0%

0.0%

2.0%

4.0%

6.0%

Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18

Page 11: ILS Market Update - d2mqw5602n62j3.cloudfront.net · ILS Market Update 5 Q3 2018 ILS market issuance overview “This record-breaking Q3 issuance seems to put this year’s $8.7 billion

Howard Bruch

Managing Director and Head of Sales and Trading

+1 212 915 8407

[email protected]

William Dubinsky

Managing Director and Head of ILS

+1 212 915 7770

[email protected]

Contacts:

Willis Towers Watson Securities (“Willis Towers Watson Securities”) is a trade name used by Willis Securities, Inc., a licensed broker dealer authorized and regulated by FINRA and a

member of SIPC (“WSI”), Willis Towers Watson Securities Europe Limited (Registered number 2908053 and ARBN number 604 264 557), an investment business authorized and

regulated by the UK Financial Conduct Authority and exempt from the requirement to hold an Australian Financial Services License under ASIC Class Order [03/1099] (“Willis Towers

Watson Securities Europe”) and Willis Towers Watson Securities (Hong Kong) Limited, a corporation licensed and regulated by the Hong Kong Securities and Futures Commission

(“Willis Towers Watson Securities (HK)”). Each of WSI, Willis Towers Watson Securities Europe and Willis Towers Watson Securities (HK) are Willis Towers Watson companies.

Securities products and services are offered through WSI, Willis Towers Watson Securities Europe and Willis Towers Watson Securities (HK). Reinsurance products are placed

through Willis Re Inc. in the United States and through Willis Limited in the UK, both also Willis Towers Watson companies.

These materials have been prepared by WTW Securities based upon information from public or other sources. WTW Securities assumes no responsibility for independent

investigation or verification of such information and has relied on such information being complete and accurate in all material respects. To the extent such information includes

estimates and forecasts of future financial performance obtained from public sources, WTW Securities has assumed that such estimates and forecasts have been reasonably prepared

on bases reflecting the best currently available estimates. No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and

nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. The information contained herein is not intended to provide

the sole basis for evaluating, and should not be considered a recommendation with respect to, any transaction or other matter. WTW Securities is not providing any advice on tax,

legal or accounting matters and the recipient should seek the advice of its own professional advisors for such matters. Nothing in this communication constitutes an offer or solicitation

to sell or purchase any securities and is not a commitment by WTW Securities (or any affiliate) to provide or arrange any financing for any transaction or to purchase any security in

connection therewith. WTW Securities assumes no obligation to update or otherwise revise these materials. This communication has not been prepared with a view towards public

disclosure under any securities laws and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without the prior written consent of WTW Securities.

Information contained within this communication may not reflect information known to other employees in any other business areas of Willis Towers Watson and its affiliates.

The contents herein are provided for informational purposes only and do not constitute and should not be construed as professional advice. Any and all examples used herein are for

illustrative purposes only, are purely hypothetical in nature, and offered merely to describe concepts or ideas. They are not offered as solutions for actual issues or to produce specific

results and are not to be relied upon. The reader is cautioned to consult independent professional advisors of his/her choice and formulate independent conclusions and opinions

regarding the subject matter discussed herein. Willis Towers Watson is not responsible for the accuracy or completeness of the contents herein and expressly disclaims any

responsibility or liability based on any legal theory or in any form or amount, based upon, arising from or in connection with for the reader's application of any of the contents herein to

any analysis or other matter, nor do the contents herein guarantee, and should not be construed to guarantee any particular result or outcome.

Willis Towers Watson (NASDAQ: WLTW) is a leading global

advisory, broking and solutions company that helps clients

around the world turn risk into a path for growth. With roots dating

to 1828, Willis Towers Watson has 40,000 employees serving

more than 140 countries. We design and deliver solutions that

manage risk, optimize benefits, cultivate talent, and expand the

power of capital to protect and strengthen institutions and

individuals. Our unique perspective allows us to see the critical

intersections between talent, assets and ideas — the dynamic

formula that drives business performance. Together, we unlock

potential. Learn more at willistowerswatson.com.

About Willis Towers Watson

Quentin Perrot

Senior Vice President

+44 20 3124 6499

[email protected]