Trends in the ILS sector and implications for the wider insurance industry
Dirk Lohmann: perspectives of an ILS manager
Coming into the renewal season in mid-October there was a lot of uncertainty as to the potential impact of third quarter events on the reinsurance market and the alternative reinsurance market engaged in collateralised reinsurance transactions.
The general consensus at the time seemed to be that the collateralised reinsurance market, as the dominant provider of retrocessional capacity to the reinsurance market, would face large losses or, at worst, a significant proportion of the collateral posted to secure obligations would be trapped and unavailable for renewal on January 1. The overall magnitude of estimated insured losses (ranging at that time between $100 and $190 billion) seemed to suggest that a major price correction was surely on its way.
Ultimately, the renewal was late in coming, with many contracts receiving firm orders only in the week before Christmas or in the last days of the old year. While late, the resulting renewal was orderly with little distressed buying and the rate increases achieved were lower than many market commentators and peers had predicted. What happened?
From our perspective, there were three key drivers behind these developments:
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