Insurance Day podcast: The state of the ILS market
Leadenhall Capital Partners' Luca Albertini, and Willis Re's Quentin Perrot joined Insurance Day to discuss the present and future of the ILS market in the context of the Covid-19 pandemic
The insurance-linked securities (ILS) market has been through tough times. After many years of vertiginous growth to become a core part of the reinsurance/retro market, it suffered massive catastrophe losses in 2017 and 2018.
Trapped capital and loss creep added insult to injury, and some end-investors chose to reallocate their assets to reinsurance equity and the best-performing ILS funds.
By Aon's estimation, headline assets under management in the alternative capital sector have fallen by $4bn to $91bn. Investors have concerns about model credibility, loss creep and climate change, causing a few to leave the market.
Of even greater concern to ILS fund managers, at least $15bn of collateral is believed to be trapped as a result of recent major losses including Covid-19. The reduction in capital available to deploy is affecting the retro market in particular.
On the other hand, there are positive rate movements, and the ILS market is looking forward to benefiting from better pricing across the board.
The property-cat bond market, in particular, continues to attract strong interest. By Aon's estimation, around $6.5bn of limit was placed in the first half of 2020, nearly matching the maturities. In addition, a great deal of activity has been seen in the industry loss warranty market.
The global health crisis will have an immediate cost, but could have benefits for the ILS market if it allows pandemic risk to be distributed to the capital markets.
This podcast brought together Luca Albertini, chief executive of Leadenhall Capital Partners, a top-tier ILS fund, and Quentin Perrot, head of ILS at Willis Re International, for a fascinating discussion on all the key issues facing the market.