Sustainability of ILS still in doubt: buyer
The impact of the ILS market on traditional reinsurance but also its long term sustainability especially post-loss will be big talking points at this year’s SIFMA Insurance and Risk-Linked Securities conference taking place in New York next week, according to Steve Cottrell, the CFO of Louisiana Citizens Property Insurance Corporation.
“As the market continues to draw attention from hungry investors in 2014, delegates will be talking about the influx of capital; the demand for cat bonds, and how the sector is changing the flexibility of traditional reinsurance,” he said.
“The sustainability of cat bonds will also pique a lot of interest. For one thing, I don’t know that a lot of cat bonds have had significant losses—the escalation of the numbers is fairly recent, so if a significant storm were to cause large losses, would the cat bond investment money still come back in future years? We don’t know.”
Louisiana Citizens, a state-backed insurer which provides insurance to high risk properties, dedicates about 45 percent of its reinsurance programme to cat bonds, issuing its first Pelican Re bond in 2012.
“Flexibility and price are the two things that encouraged us initially. We’re a market of last resort—we insure the higher risk properties, so price is always important to us,” said Cottrell.
“Florida Citizens also has a mixture of cat bonds and traditional reinsurance. Most of the serious buyers—the ones that buy the serious dollars—have moved towards a mix of ILS and traditional reinsurance because of the flexibility and price. As companies buy more cat bonds and less traditional reinsurance, it also puts price pressure on reinsurers.”
Cottrell also spoke of an increase in public entity issuance and how advancements in the market are helping to give ILS a permanent place in reinsurance programmes.
To read the full article in Intelligent Insurer’s supplement called ILS from all angles, look out for a copy at the SIFMA conference, or email John Walsh to obtain a digital version.
