The insurance-linked securities (ILS) market has experienced a year-on-year decline of $4 billion in Q2 2019, according to Willis Re Securities.
In its report, ‘ILS Market Update’, Willis Re Securities cited a further decrease in the number of transactions under the total transaction value.
Similar to Q1 2019, the market saw a somewhat monopoly by US wind-focused deals, with $650 million of coverage spread across three catastrophe bonds, and $1.04 billion for multi-peril protection—$300 million of which was derived from the US Federal Emergency Management Agency reinsuring the National Flood Insurance Program.
The report found that loss creep continued to affect the ILS market but at a “substantially reduced rate”.
In Q2 2018, cat bond losses from 2017 events, such as hurricane Harvey, California wildfires and the Chiapas earthquake, totalled around $755 million, while in Q2 2019 this loss creep figure stood at $1 billion. This year-on-year increase of 40 percent is currently being monitored and subsequently accommodated by the market.
William Dubinsky, managing director and head of ILS at Willis Re Securities, commented: “Things are slowly returning to a more normal ILS environment, but relationships will still matter over the next six months if cedants are to get the protection they need at sensible pricing, terms, and conditions.”
He continued: “The contracting ILS market required cedants to look elsewhere for capacity during the recent renewals. Those with at least some relationship-based treaties with long-established reinsurance partners on their books found it easier to plug the gaps, relative to those who buy reinsurance on a purely transactional basis.”
Dubinsky concluded: “That is likely to be the case for the balance of the year at least. Both approaches have merits, however, and the ideal balance will be different for each reinsurance buyer.”
