The latest quarterly update from Willis Towers Watson Securities predicts that 2018 will be a year of growth for insurance linked securities (ILS).
The update comes as the market recovers after a series of natural disasters and more investors show a keen interest in ILS products.
According to the update, 2017 was a record-setting year for the ILS market. Non-life ILS issuance continued to increase and ended the year with nearly US$10 billion. It is projected that non-life ILS capital was at US$88 billion at year end, 2018. This represents a year-over-year increase of 17% from US$75 billion in 2016.
The brokerage giant suggested that this proves that the ILS market was able to withstand 2017’s natural catastrophe losses. It also demonstrated that ILS capital is “looking to both the short-term potential for modestly better risk spreads and the longer term opportunity to partner with reinsurers, insurers and insureds to fuel AUM growth and ultimately make insurance more available and affordable,” the company said.
Q4 2017 saw substantial loss activity across all ILS investments, the update continued, with a preliminary estimate of US$630 million in cat bond principal losses. The catastrophes listed included hurricanes, earthquakes, and wildfire activity. The market also saw US$1.3 billion of non-life catastrophe bond capacity issued through five cat bonds – Covea Mutual Insurance Group and Validus Holdings represented two new sponsors along with Hexagon Re and Tailwind Re.
“We see no end in sight to ILS growth,” commented ILS managing director Bill Dubinsky.
“The ILS community is signalling that it is ready and open for business. 2018 is shaping up as a brutal battle for market share between, on the one hand, incumbent reinsurers and ILS investors trying to both maintain their positions and exact some rate increases and, on the other hand, other ILS investors and reinsurers trying to stake a claim to participate in additional risk.”