ILS is not a threat to reinsurance, says AM Best

While ILS issuance has increased over the last couple of years, it still does not present a series threat to traditional sources of capacity, according to Robert DeRose, vice president at rating agency AM Best.

“Currently, ILS is too small a segment to present significant competition for the traditional market,” he told Intelligent Insurer.

Although DeRose believes that traditional reinsurers do face increased competition from capital coming in through the collateralized market, he says that the traditional market is here to stay for the foreseeable future.

“It’s an easy market to do business with. While there’s more competition coming into the market from these vehicles, I wouldn't really consider that to be a threat,” he said.

DeRose also pointed out that many traditional outfits are beginning to make use the capital markets themselves, to take advantage of the benefits of using alternative sources of capital.

“Most of the traditional players – certainly the traditional players in Bermuda – have set up sidecars to tap the capital markets themselves. It’s providing a source of capacity to deploy to their clients, it provides the income and it allows them to better spread the risk,” he said.

Greg Reisner, managing senior financial analyst at AM Best, added that it is likely that more companies will look to make the most of what the capital markets can offer to traditional reinsurers.

“I think as times goes on there will be more sidecars or collateralized vehicles,” he said.