Global reinsurance broker Gallagher Re has reported constrained capacity in global non-marine retrocession as traditional reinsurers have restricted their requirements for capital deployment, with the ILS market showing significant outflows and limited inflows.
The broker noted that aggregate capacity was in shorter supply than in previous years, with providers wary of secondary peril losses after another year of above-average costs.
The increase in frequency and severity of catastrophe events has put pressure on reinsurers view of aggregate covers and the ability of ILS funds to attract investors.
Gallagher Re says that the events like the December Tornadoes have drawn additional scrutiny.
Reinsurers also showed a low appetite for low level excess of loss business, with reinsurers increasingly focused on attachment level rather than price.
Gallagher Re also noted that, “Significant Asset Under Management headwinds are a result of the industry’s poor historical performance, trapped collateral and negative investor sentiment, and has seen a material reduction in ILS’ relative share of the Retro market.”
Cat bonds and ILWs remain an attractive asset class for investors with purchasing of County Weighted and State Weighted industry products garnering greater appetite from buyers.
However, quota share capacity continues to reduce as limited new capacity entered the space and incumbent reinsurers came off business which had not been profitable.
Increased claims frequency coupled with socio-economic pressures and claims inflation has driven loss costs higher year on year, says the broker.
As a result, portfolios with poor results, or at unsustainable attachment levels, have attracted less capacity as reinsurers continue to differentiate clients.
“This disparity has become increasingly marked,” says Gallagher Re.