13 December 2013

EIOPA report calls for close supervision of ILS

The European Insurance and Occupational Pensions Authority’s (EIOPA) December 13th Financial Stability Report calls for careful supervision of developments in the Insurance Linked Securities (ILS) market, arguing that “extensive usage of ILS tend to cloud the picture in terms of understanding the risk transfer”.

According to the report the global reinsurance market is robust and higher primary premiums resulted in growth in insurer capital, but the presence of large amounts of capacity has created a competitive environment.

The report reads: “it looks like excess capital in the traditional industry will continue to put downward pressure on pricing, at least prevent any increases. This has already been evident in the first half of 2013.”

While catastrophe bond yields have experienced a downward trend in 013 they are expected to stabilise next year, EIOPA wrote, and remain relatively attractive.