ILS market to near $100 billion volume in 2018: Hannover Re

By the end 2018 the market for insurance-linked securities (ILS) is expected to reach a total volume of close to $100 billion, according to Hannover Re.

As much as two thirds of that amount will come from collateralised reinsurance, which consists of private contracts between cedants and investors that are backed by collateral held in trust, the company said. Reinsurers like Hannover Re front some of these transactions.

"Collateralised reinsurance will continue to grow strongly," said Henning Ludolphs, managing director retrocession and capital markets at Hannover Re.

"For investor and cedants, collateralised reinsurance is attractive because of its broader range of risks and simpler structure. Collateralised reinsurance has become a success story in itself and we remain strongly committed to it."

Hannover Re has completed its fifth catastrophe bond transaction for clients this year, raising the total issuance volume to $1.5 billion in 2018.

Hannover Re's latest transaction was a $125 million cat bond covering San Diego-based energy infrastructure company Sempra Energy against third-party liability from wildfires.

The company's biggest transaction this year was a $500 million cat bond providing protection for the Federal Emergency Management Agency (FEMA) for floods in the 50 US states, the District of Columbia, Puerto Rico and the US Virgin Islands that result directly or indirectly from a named storm. The transaction marked the first time FEMA transferred risks through a cat bond to investors.

Earlier this year, Hannover Re completed three further transactions for existing clients. It helped cover Texas Windstorm Insurance Association against named storms and severe thunderstorms through a $400 million cat bond and American Integrity Insurance Company of Florida against named storms and severe thunderstorms through a $79 million cat bond. In addition, Hannover Re has transformed $400 million of California and Pacific Northwest earthquake risk for Oak Tree Assurance.

"With this year's issuances, we have been able to maintain existing partnerships and attract new clients," said Jürgen Gräber, Hannover Re's executive board member responsible for coordination of property and casualty reinsurance and insurance-linked securities. "Through our activities in the insurance-linked securities market, we are able to generate margins that are both low-risk and attractive."

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