SCOR’s Kessler sees ILS reach 25% of reinsurance capacity

While insurance-linked securities (ILS) are now estimated to be providing around 15 percent of total reinsurance capacity, SCOR CEO Denis Kessler believes that it could grow to 25 percent or a maximum of 30 percent.

A record-high $1.6 billion of non-life ILS capacity was issued in the third quarter of 2018, according to Willis Re.

The total exceeds the former third quarter record of $1.4 billion achieved in 2013, and is well ahead of the five-year average of $800 million, according to the most recent ILS Market Update.

The record issuance highlights the continued enthusiasm for ILS amongst issuers and investors, the report noted.

The activity puts this year’s total issuance – already at $8.7 billion by 31 September on track to meet or even exceed last year’s $9.7 billion full-year record, Willis Re noted.

The share of ILS in the total reinsurance capacity may double to a maximum of 30 percent, Kessler predicted during a Nov. 6 S&P Global Ratings insurance conference in London.

“There will be some limitations for the development of ILS,” Kessler said. ILS cover needs to be event driven and short tail and it needs data and models, he noted. Casualty and liability is difficult to cover through ILS as investors want their money back after two to three years, he suggested. Catastrophe is therefore the primary area where ILS can play a major role.

“There is still growth potential,” Kessler said. He can, for example imagine that ILS will be used to cover cyber risks. In addition, ILS can be used by governments to protect public goods, he said, noting that this is already happening particularly in emerging markets.

“Maybe it goes up to 25 percent,” he suggested. He noted however, that he does not see alternative capital as a substitute of traditional reinsurance, but as additional capacity to complement the traditional business.

SCOR does itself issue CAT bonds for example against pandemics. “We have to uses these instruments,” Kessler said. Alternative capital is a form of additional capacity to clients, he explained.

“We invest in ILS because it is a good investment,” he added.

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