12 September 2017 Insurance

Reinsurers and ILS to benefit from post-Irma demand

Traditional reinsurers and insurance-linked securities (ILS) funds are likely to benefit from reinsurance demand post-Hurricane Irma, Willis Re executives suggested at the Monte Carlo Rendez-Vous.

“There will be two winners in the market: the traditional reinsurers, that can align themselves with new capital quickly, and the same with the ILS funds,” said Willis Re deputy CEO James Kent.

Hurricane Irma, which hit Florida on Sunday, September 10, is likely to accelerate ILS growth. ILS is a major source of capacity in the Florida reinsurance market.

“With the storms looming, it is likely that ILS will grow further and even faster,” said Willis Towers Watson Securities CEO Rafal Walkiewicz.

Non-life ILS issuance reached a record-breaking total in the second quarter of 2017, continuing the trend from the first quarter of the year.

A Willis Towers Watson Securities report found that after a better-than-average issuance volume in the first quarter, in Q2 2017 $6.3 billion of non-life catastrophe bond capacity was issued through 36 tranches, compared with $1 billion issued through 17 tranches in Q2 2016 and the previous quarterly record of $4.5 billion issued in Q2 2014.

Willis Re expects the reinsurance market, including cat bonds, to react in a disciplined way to Hurricane Irma.

The majority of cat business that is purchased today is placed with A+ reinsurers or collateral, Kent noted.

“Post-event we know that the ILS market has a fluidity to move. A number of funds have contacted brokers and clients to say they are ready to move with capital behind. Reinsurance capital is a fraction of capital available in pension funds and private funds that exist today.”

Walkiewicz added: “Irma is unlikely to scare investors off from the ILS space—on the contrary. We hear from investors: ‘we have capital, and when there is any movement in price, we are willing to invest’.”

From cedants’ perspective, cat ILS is mostly done in collateralised form, he noted. “You don’t have credit risk, it should be settled fairly quickly and easily. If I can make a judgement, it’s that big storms can only accelerate growth in ILS.”

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