Sandy blows wind from ILS market’s sails

Uncertainty around the eventual size of re/insured losses from Hurricane Sandy has led to a quietening of the insurance-linked securities market. This is the view of Luca Albertini, chief executive of Leadenhall Capital.

Given that the diameter of the storm was approximately 950 miles, there is still much uncertainty surrounding the scale of losses. This has made investors more cautious, according to Albertini.

“It’s interesting that there wasn't much trading across the board. The bid offer has been widening, while the demand to market has been reflecting higher yield or going down. This is because, until there is better clarity, people are questioning why they should take these risks,” he says.

If the upper loss estimates from Hurricane Sandy are realised, this could lead to a hardening of rates in the traditional reinsurance market. If this occurs, ILS bonds could be further adversely affected because new ILS issuance, as well as traditional reinsurance, will be more attractively priced, according to Albertini.