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ID Comment: ILS bounces back into new spaces

Post-HIM, the insurance-linked securities markets are growing in sophistication as well as size

The market for insurance-linked securities (ILS) has bounced back in the wake of last year’s natural catastrophes and looks set to be growing in sophistication as well as size.

In the aftermath of hurricanes Harvey, Irma and Maria (HIM), the ILS market has broken new records, with issuance in 2018 at $9.39bn, according to Artemis.bm, bringing the total outstanding capital to $35.3bn.

While many funds have replenished their capital as their investors sought to take advantage of a slight pick-up in yields, others are chasing margin by moving ever closer to risk, cutting out the traditional re/insurance value chain.

Nephila’s co-founder Greg Hagood, writing in a report by Clear Path Analy­sis, said Nephila was seeking to vertically integrate today’s “very inefficient” distribution chain and described its rationalisation as the “next stage and evolution of the market”.

Hiscox Re and ILS, meanwhile, is looking at ways to bring cyber and other specialty lines products to the capital markets. It, and others, are searching for ways to bring capital directly to bear on the primary markets.

The traditional re/insurance industry has, largely, decided to make a friend of alternative capital, by bringing it to play alongside its existing structures.

It knows this capital is unlikely to pull out at the first signs of large losses, and its return expectations make it very competitive.

All this represents more than just an evolution of the industry: It is a fundamental structural shift towards a new model for underwriting risk, with cheaper and deeper capital, less given to wide swings in pricing.

For buyers of protection, this is great news. For sellers, it represents a fresh challenge to maintain relevance, and one they will individually have to meet or be swept away by the tide of history. 

 

Tune in at 11:30 am London time on July 12 for Insurance Day’s exclusive webinar, sponsored by Clifford Chance, on the new opportunities to be found in the insurance-linked securities market in 2018. In this panel session we will discuss innovation in alternative capital, the status of London as the world's newest ILS hub, and the market's reaction after HIM.

The speakers on the one-hour webinar are:

  • Katherine Coates, partner, Clifford Chance
  • Jean-Louis Monnier, global co-head of ILS, Swiss Re
  • Des Potter, head of GC Securities, Guy Carpenter
  • Malcolm Newman, managing director, EMEA hub, Scor
  • Rob Proctor, founder, Securis
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