Alternative reinsurance capital continues to expand, with non-life insurance-linked securities (ILS) capital reaching $88 billion at year-end 2017. And with growth expected to continue, there could be a “brutal battle” between ILS and traditional capacity, according to Willis Towers Watson Securities.
Data from capital markets and insurance-linked securities (ILS) brokerage unit, Willis Towers Watson Securities, estimates that the volume of non-life ILS capital in global reinsurance markets increased by 17% in 2017, despite the heavy volume of catastrophe losses.
Catastrophe events that took place in the third and fourth quarter of 2017 provided the ILS market’s first real test, but renewal commentary has highlighted the maturity and sophistication of the ILS investor and sponsor base in the face of large losses, and market growth continued despite challenges.
Looking forward, Bill Dubinsky, Managing Director and Head of ILS, Willis Towers Watson Securities, expects ILS market growth to persist, as alternative and traditional providers of reinsurance capacity compete for market share.
“We see no end in sight to ILS growth. The ILS community is signalling that it is ready and open for business. 2018 is shaping up as a brutal battle for market share between, on the one hand, incumbent reinsurers and ILS investors trying to both maintain their positions and exact some rate increases and, on the other hand, other ILS investors and reinsurers trying to stake a claim to participate in additional risk,” said Dubinsky.
Many insurers and reinsurers now work with alternative, or third-party reinsurance capital in some form, utilising the efficient base of capital markets-backed capacity to support their risk transfer needs, a trend which has supported the expansion of the space in recent times.
Despite the large losses witnessed last year, reinsurance market competition remains intense, especially in the property catastrophe arena, which remains the focus of the majority of ILS capital.
“Incumbent ILS investors have taken a page from the book of large traditional reinsurers to blunt competition by playing the relationship card and attempting to replace commoditized and easily syndicated covers with bespoke structures that allegedly add value through customization,” explains Willis Towers Watson Securities, in its Q4 2017 ILS Market Update.
The blurring of the lines between alternative and traditional reinsurance capital has been ongoing for some time now, and as the ILS market continues to claim a larger slice of the overall reinsurance market pie, the battle for market share is expected to continue.