The value of non-life capacity issued and outstanding at the end of Q3 reached $27.3 billion, according to the new insurance-linked securities (ILS) Market Update from Willis Re Securities, part of Willis Re, the reinsurance division of Willis Towers Watson (WTW).
The report suggested that alternative capital in all different forms is growing again, notwithstanding the losses and related loss creep in the last several years.
It found that some managers, sectors, and strategies have outperformed, and are now benefiting as a result, while others remain under stress. Meanwhile, reduced loss creep, higher premiums, and the associated improved risk-return profile have provided a tailwind which should prompt new issues.
The report outlined regulatory change as a trend to watch, suggesting that the choice of legal entity and domicile is not usually near the top of the list of key factors influencing ILS market activity, but this year could be different. There is an unusual amount of innovation and change in this area around the world. The change creates interesting options for market participants.
William Dubinsky, managing director and CEO, Willis Securities, said: “The ILS market is at an important inflection point. Starting in Q4, but with more effect in 2020, we expect growth in the more liquid forms of ILS, particularly catastrophe bonds.”
He continued: “Some investors are realigning their portfolios towards investments with lower projected losses, as they see increasing relative value at the more remote end. That could bode well for cat bonds.”
He added: “Sidecar interest has picked up as well, but the extent to which this interest will translate into completed deals will depend very much on the specific opportunities presented to investors. Not all deals will meet their increasingly stringent criteria.”
