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19th August 2018
Standard & Poor's looks at what impact continued growth of ILS will have on reinsurers' competitive positions
Trend
Insurance-linked securitisation (ILS), which brings third-party capital into the reinsurance sector, has
transformed the market, especially in the property catastrophe space. Even the natural catastrophe losses of 2017 have not dented investors' enthusiasm for the various instruments that come under the banner of alternative or
convergence capital. In a report published this week, S&P Global Ratings consider what effect the continued growth of ILS will have on reinsurers' competitive positions-"How Reinsurers Have Learned To Align Third-Party Capital With
Their Needs".
The latest figures show that ILS funds had combined assets under management of nearly $100bn by July. Even as the reinsurance industry digested the effects of 2017's three major hurricanes-Harvey, Irma, and Maria, which
affected the Caribbean Islands, Texas, and Florida- alternative capital continued to grow, contrary to the expectations of some market observers.
Investors, scenting the chance of increased returns, replaced capital that had been put aside as collateral to cover insured losses, enabling them to participate in the 1st January 2018, round of renewals. As a result, the price
hikes the industry has typically seen after previous catastrophe events were limited.
Many observers had assumed that investors who entered the ILS market during the recent string of benign catastrophe years might take fright when investment returns turned negative. However, S&P saw no capital flight following the negative investment returns that followed the 2017 hurricanes as losses were within investors' expectations. Indeed, the market was able to more than restore the collateral trapped following the 2017 events.
Standard & Poor's Trends(485 articles)