More selective capital and new records: Aon’s ILS outlook

Insurance-linked securities (ILS) have the opportunity to hit record issuance levels in 2022 amid an “orderly” market, according to Paul Schultz, chief executive officer of Aon Securities.

While evolving market dynamics are making an exact figure difficult to forecast, Schultz did note that issuance would, at the very least, be in the “upper echelons of where the historic figures have been”.

And, with 2023 just around the corner, Schultz anticipates this elevated view on issuance potential to move forward too.

Speaking to Intelligent Insurer, Schultz said: “As we move towards the 1/1 renewal and into 2023, we think the market is very orderly so we believe there’s going to be capacity and capital available from ILS managers to support growth for the remainder of 2022. We anticipate more growth in 2023.”

He added that the market will be in this period for a while, where re-underwriting of what “an appropriate return is for the risk taken” will continue to take place.

“As we speak, we need to be mindful of the impacts from Hurricane Ian—both personal and professional. Obviously top of mind is the impact to Floridians, but also how the event will change the current outlook in terms of factors such as potential losses and capital flows. The ILS market has exhibited resilience in times of peril, and we would expect nothing different this time.”

While new capital is flowing into the ILS market, it is being more selective than previously.

Schultz believes the arrival of capital this year will be very different from the influx in 2017, when “a tremendous amount of new capital came in following losses”.

“Now, capital is being a little more selective in the way it comes in. It’s not going to enter in a wholesale way like it did in 2017—it’s going to arrive in a much more thoughtful way, in a way that can be deployed and continue the objective of re-underwriting and obtaining a new view on risk and return.”