Will ILS ultimately grow an entire market?


Will ILS ultimately grow an entire market?

As capacity available to cover peak US catastrophe risks reaches saturation point, many believe that alternative capacity will increasingly allow the industry to take on different risks—some of which have traditionally been covered by governments.

In some ways it is a natural transition of risk and a process that can be beneficial to all. On the one hand, governments are grappling with tight budgets and growing deficits against the backdrop of a sluggish global economy. Any mechanism that offloads risk and frees up cash is very welcome.

On the other hand, reinsurers are struggling to find growth. Mature economies are stagnant and the influx of new capital is pushing down rates on peak perils. Emerging markets offer some respite but there is only so much premium to go around and even in these areas competition is increasing.

The answer to both problems could be for reinsurers to take on more risk currently being handled by governments. Especially in the US, moves are afoot on a number of fronts that would see this happen. The future of the National Flood Insurance Program (NFIP) is being discussed as is the Terrorism Risk Insurance Program (TRIP) and even aviation war risks could soon start to move back into the private market.

ILS, Reinsurance, Catastrophe, US, Intelligent Insurer

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