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Clive O’Connell, partner, head of insurance and reinsurance at McCarthy Denning, gives his thoughts on why 2020 could be a great year for the ILS market.
2017 was the year that insurance-linked securities (ILS) truly came of age. Born in the aftermath of Hurricane Andrew in 1992, and maturing in the wake of Hurricane Katrina in 2005, the market celebrated its 25th birthday by showing that it worked; that it could provide the protection that insurers need when faced with significant losses from a series of natural disasters.
2019 has shown that ILS can not only protect insurers and reinsurers—it can also provide a solid and diverse investment opportunity to pension funds and other capital sources even when losses occur. While a few investors have shown concern about participation in a market where losses are real and capital can be trapped, more have seen how the market operates and realised that it is and will remain a valuable diversification for their funds.
There will be further growth in the sector in 2020. Insurers and reinsurers, along with their regulators, understand the need for collateralised protection against industry-threatening losses. The industry must be protected against events like, or even larger than, Katrina, and individual insurers or reinsurers need protection against more localised events.
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