ILS market recovers from $630m nat cat loss in Q4

The fourth quarter of 2017 saw considerable loss activity across all insurance-linked securities (ILS) investments with a preliminary estimate of $630 million in cat bond principal losses including hurricane, earthquake, and wildfire activity, according to a Willis Towers Watson Securities report.

In 2017 the re/insurance industry was hit by natural catastrophes resulting in overall insured losses of around $130 billion according to estimates, posing what some describe as the first test to a booming alternative reinsurance capital market.

But the ILS market has quickly recouped lost capital after the nat cat losses issuing $1.3 billion of non-life catastrophe bond capacity through five cat bonds in the fourth quarter of 2017. Covea Mutual Insurance Group and Validus Holdings represented two new sponsors with Hexagon Re and Tailwind Re 2017-1.

The insurance-linked securities (ILS) market faces another year of growth in 2018 as the market recovers from recent natural disasters, replaces lost capital and investors show mounting interest in ILS products, according to Willis.

The latest quarterly ILS market update shows that 2017 was a record-setting year for the ILS market as non-life ILS issuance continued to increase and ended the year close to $10 billion. It is estimated that non-life ILS capital stood at $88 billion at year-end 2017, which represents a year-on-year increase of 17 percent from $75 billion in 2016.

According to the report, this demonstrates that the ILS market was able to withstand the 2017 natural catastrophe losses as funds diligently reached out to their investors and risk partners ensuring an orderly and supportive environment. It also shows that ILS capital is looking to both the short-term potential for modestly better risk spreads and the longer-term opportunity to partner with reinsurers, insurers and insureds to fuel assets under management (AUM) growth, according to the report.

“We see no end in sight to ILS growth,” said Bill Dubinsky, managing director and head of ILS, Willis Towers Watson Securities. “The ILS community is signalling that it is ready and open for business. 2018 is shaping up as a brutal battle for market share between, on the one hand, incumbent reinsurers and ILS investors trying to both maintain their positions and exact some rate increases and, on the other hand, other ILS investors and reinsurers trying to stake a claim to participate in additional risk,” Dubinsky said.

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