ILS market has come through first big test: Willis Re

The ILS market showed resilience during the catastrophe losses in the second half of the year, comfortably weathering the first major test for a number of funds with investors prepared to recapitalize funds and provide liquidity for trapped capital, according to the latest 1st View renewals report from Willis Re.

Similarly, traditional reinsurers’ Q3 2017 results showed that while the losses are clearly an earnings event, the impact on capital has been relatively muted with average capital impairments in the range of 5 percent to 7.5 percent.

The report noted that with recent catastrophe loss estimates in the region of $136 billion, 2017 is proving to be one of the worst loss years on record for the global re/insurance market.

“Unfortunately for reinsurers, the catastrophe losses of 2017 are coinciding at a time when profitability in non-catastrophe lines is constrained and prior-year reserve releases are slowing, according to the report. However, pricing corrections have not seen a significant spike due to the combination of strong reinsurance market capitalization, losses being split over a number of different events and the fact that a large tranche of the losses were retained in the primary market,” the report said.

“For buyers, the shape of the global reinsurance industry in 2017 was significantly different to those previous years impacted by large catastrophe events. The current market has witnessed traditional reinsurers remaining strongly regulated and capitalized supplemented by ILS capacity, which has grown to $75 billion.”

James Kent, global CEO of Willis Re, said: “No commentary on the January 1 renewal season can overlook the scale of human suffering and economic loss that the catastrophes in the second half year of 2017 have caused. The global reinsurance industry is central to alleviating the impact of the 2017 hurricane losses.

“The speed of claims payments from reinsurers to their clients has been exemplary and the value of reinsurance has been illustrated to many clients yet again. Clearly the 2018 renewal season will for many reinsurers be a disappointment in terms of the rating levels achieved. However, this must be balanced against the ability of the market to provide buyers with stability of capacity at reasonable prices with an orderly renewal process, which demonstrates the growing advancement of the market.”

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