The insurance-linked securities (ILS) and traditional reinsurance markets have shown resilience at the January 2021 renewals, despite multiple small-to-medium-sized catastrophe losses and the COVID-19 pandemic, according to analysts at AM Best.
A report by the rating agency shows that there was sufficient ILS and traditional reinsurance capital to meet demand at the key renewal period.
Additionally, the report finds that the traditional market avoided a dislocation mostly as a result of an influx of new capital, less capital trapping, and the delayed reckoning of COVID-19-related losses.
Citing insurance and reinsurance brokerage Aon, the report highlights $23 billion of new capital that was raised by traditional reinsurers and reinsurance start-ups in 2020.
The capital raises witnessed throughout the year were both defensive and offensive in nature. While some clearly looked to take advantage of hardening market conditions, others looked to shore up capital bases to meet regulatory and rating agency capital requirements, and also to navigate the uncertainty of COVID-19 losses.
The ILS market also saw the launch of new funds, with Integral ILS launching in mid-2020, with $600 million of committed capital of assets under management, while Gildenbrook Capital launched in the Q4 with $850 million of institutional assets under management.
“All of these capital raises occurred after and in spite of the significant asset shock from the initial wave of lockdowns in March 2020, uncertainty with respect to the pandemic, and the elevated insured natural catastrophe losses in 2020,” says AM Best.
The report also shows that despite the events of 2020 and COVID-19, investors are still supporting the ILS and traditional reinsurance markets. According to the ratings agency, this is largely due to the confidence investors have in these markets and the fact that low yields in other asset classes make the reinsurance rate environment more attractive by comparison.