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Asha Attoh-Okine, managing senior financial analyst at AM Best's Insurance-Linked Securities Group takes a look at the evolution of the convergence market.
The evolution of the convergence market continues unabated as evidenced by the increased amount of peak exposures ceded to the insurance-linked securities (ILS) space, the record-breaking amount of cat bonds issued, the increase in assets under management of dedicated ILS investors and last but not least, the benign insured loss environment over the past years.
Estimates for the convergence market’s overall value in 2014 ranged from $45 billion to $60 billion. The growth in the ILS property catastrophe exposure market has been phenomenal given it was nonexistent 20 years ago. Catastrophe bonds issued for property/casualty exposures have average annual growth of about 24.4% since 1997, compared with 16% annual growth related for both property/casualty and life/health exposures.The growth in the ILS property catastrophe exposure market has been phenomenal given it was nonexistent 20 years ago. Catastrophe bonds issued for property/casualty exposures have average annual growth of about 24.4% since 1997, compared with 16% annual growth related for both property/casualty and life/health exposures.
The emergence of this market, which blends traditional (re)insurance contracts with financial instruments, has generally been caused by perceived inefficiencies in the traditional reinsurance market, the insurance underwriting cycle due to pricing and major catastrophe events, the desire by holders of peak insurance exposures to diversify reinsurance coverage (i.e. credit risk reduction) and the emergence of enterprise risk management.
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Convergence, ILS, AM Best