ILS market volume to top $100bn in 2022, says Hannover Re

Hannover Re, the third-largest reinsurer in the world, has forecast the insurance-linked securities (ILS) market to exceed $100 billion volume in 2022 with an increased market volume for both catastrophe bonds and collateralised reinsurance.

In 2021, the reinsurer transfered more than $2.7 billion in catastrophe bonds, spread across 11 issuances to the capital market for its clients, breaking "record volume", compared with $1.6 billion transferred  in the previous year.

Hannover Re facilitated for its customers the placement of covers against losses from natural disasters such as floods, storms, earthquakes and wildfires on the capital market.

The volume of the individual catastrophe bonds ranged from $30 million to $575 million.

Demand for cat bonds as alternative risk coverage has traditionally come from companies in the insurance sector, Hannover Re said, noting that other industries are also increasingly looking for the placement of insurance risks with investors.

Last year, for example, Hannover Re was able to assist companies in the energy, logistics and technology sectors with the transfer of insurance risks to the capital market.

Silke Sehm, whose responsibility as a member of Hannover Re's executive board includes the ILS department, said: "The demand from our clients for alternative risk covers was stronger last year than ever before. Almost 30 years ago Hannover Re was one of the market pioneers for the securitisation of insurance risks. With our extensive know-how we still rank to this day among the market leaders and we continue to play a pivotal part in numerous innovative transactions."

Henning Ludolphs (pictured), managing director retrocession and capital Markets at Hannover Re, added: "More and more companies outside the insurance sector, such as Prologis or Sempra Energy, are deciding in favour of risk transfer to the capital market and Hannover Re so far has managed to win a large portion of these mandates. That shows just how much potential the ILS market still has to offer and how important a partner with solid experience is."

"We see a sustained trend towards demand for ILS covers going beyond the insurance sector and expect other companies to tap into the advantages of such risk transfers."

In collateralised reinsurance, Hannover Re expanded the volume of transactions that it facilitated as a fronting company in 2021. "Collateralised reinsurance will continue to form a significant part of the ILS market that keeps on growing," added Ludolphs. "Investors and cedants find this segment of the ILS market attractive owing to the broader range of risks and on account of its more straightforward contractual structures. Collateralised reinsurance is a success story and we intend to play a prominent role in the next chapter just as we have to date."

Hannover Re anticipates volume in excess of $100 billion for the ILS market this year, compared with around $95 billion in 2021. The figure does not include securitisations in the area of mortgage financing.

It expects up to two-thirds of the volume in the ILS market to likely originate from collateralised reinsurance, the volume of which was virtually unchanged in 2021. For 2022, Hannover Re expects to see an increased market volume for both catastrophe bonds and collateralised reinsurance.

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