ILS market sees stellar growth in 2017
It has been a remarkable year in the alternative capital market and all sectors are continuing to grow, Cory Anger, global head of ILS origination and structuring, GC Securities, told Monte Carlo Today.
“With the exception of the sidecar market, the core money that supports public or private cat bonds and collateralised reinsurance is dominated by a similar group of investors,” Anger said.
“It’s a case of form over substance for them in how they get to assume the target insurance or reinsurance risk, but they’re putting their capital in a format that may be easier or more cost-effective for a cedant to elect to access the alternative market.”
According to Anger, there’s a pendulum swing in terms of where investors have been positioning their capital. They will look for the best absolute returns, and if they can get that in collateralised reinsurance then they might swing the pendulum in that direction.
Equally, if it is in the cat bond market (or as the margin gets smaller) they might prefer the cat bond market’s liquidity and therefore swing in that direction.
In 2016, she said, Anger saw a change in the pendulum swing, where there was more of a focus on the private illiquid forms of capital.
“All these markets are supply and demand driven,” Anger said. “When you don’t have losses eating into or excess demand for your supply of capital (while at the same time most of the managers have had funds waiting to come into and be deployed in the market), then it really becomes an excess supply issue.”
Anger said that starting in June 2016 GC Securities recognised that there would be very strong appetite for the 144A cat bond format from investors because of the amount of released collateral and the inability to deploy it. This led to the recognition that pricing needed to adjust to incentivise more risk to come into the liquid part of the ILS market.
According to Anger, investors’ renewed interest and pricing reductions through the third quarter of 2016 were a catalyst for when the renewal period came around at the beginning of 2017.
As a result, the market saw a significant appetite for risk, and the ability to deploy capital in larger amounts in the 144A format than had been seen before, leading to this year’s substantially larger transactions being brought successfully to the market with favourable pricing.
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