ILS market set to bounce back: S&P


The insurance-linked securities (ILS) market is set to bounce back from the recent drop of interest, according to an S&P Global Ratings’ report.

Titled For Global Reinsurers, 2019 Pricing’s Green Shoots Look Promising, the S&P report pointed out that following disappointing reinsurance pricing increases in 2018 and early 2019, it seemed that no amount of catastrophe losses would be sufficient to harden the overall market. 

During this year’s April and June renewals reinsurers saw some green shoots, said the report, with property catastrophe rate increases in the 15 to 25 percent range on loss-affected accounts. S&P characterises the current global reinsurance pricing environment as a hardening market rather than a hard one.

Reinsurance pricing assumptions were challenged by continued loss creep from catastrophe losses in 2017 and 2018, according to the report, and alternative capital, including ILS and collateralised reinsurance funds, were not spared.

According to Swiss Re estimates, alternative capital represented about 25 percent of total property catastrophe risk supply in 2018. In addition, alternative capital accounted for 25 to 30 percent of the insured losses from the 2017 North Atlantic hurricane season.

However, its growth has slowed because of dismal returns and spread-widening in high-yield corporate bonds, exacerbated by governance issues at certain funds, which triggered investors’ redemption requests.

“This has caused a flight to quality, as investors shifted their attention to well-established sponsors/managers with a better track record,” said the report. “However, despite the recent developments, we still believe alternative capital backed by long-term investors remains committed to property catastrophe risk and is here to stay.

S&P Global Ratings maintains a stable outlook on the global reinsurance sector and on the majority of the reinsurers it rates, reflecting reinsurers’ still-robust capital adequacy.

“While Florida property catastrophe rate increases are in the low double digits, the market can’t be characterised as a hard one, but rate improvements are heading in the right direction, signalling momentum toward desired risk-adjusted pricing,” the S&P report concluded.

S&P, Insurance linked securities

Bermuda Re