End investors, Insurance Linked Securities (ILS) funds, and buyers – the three groups active in ILS – have mostly weathered last year’s substantial loss activity with a view that reinsurance products backed by alternative capital have become mainstream, according to a new survey by Willis Towers Watson.
In fact, the 2017 catastrophe losses appear to have not deterred end investors, with 80% agreeing that the year’s ILS funds’ performance was in line with expectations.
Cedants and funds share the view that ILS will continue to grow, partly through increased usage, and partly by covering risks outside property catastrophe, such as property per-risk, cyber, and marine. While investors and cedants alike continue to show appetite for such transactions.
“The industry has widely reported the growth in the ILS market and this comprehensive survey further supports the development of ILS as an asset class despite the challenges of the catastrophe events in 2017,” said James Kent, Global Chief Executive Officer, Willis Re.
“From a Willis Re perspective we see a divergence in the intent of re/insurers to utilise ILS capacity largely driven by client type.”
“For growth to continue, ILS investors will need to demonstrate the ability to innovate and provide optimal solutions to meet clients’ evolving needs.”
Furthermore, the survey suggests that end investors see reinsurance as an established asset class. A finding that is counter to some observations that rising asset yields would deter new capital inflows to ILS.
58% of responding cedants use some ILS capacity, with one in four deriving more than 30% of their capacity from ILS.
Close to half of ILS buyers surveyed have recovered claims under their contracts. Almost all reported the collections as a positive experience.
Additionally, half of non-users would consider adopting ILS capacity over the next three years, the survey found.
“This collaborative project mirrors our approach to the risk business,” added Carl Hess, Head of Investment, Risk and Reinsurance at WTW.
“We cooperated across the components of Willis Towers Watson’s Investment, Risk and Reinsurance (IRR) segment – comprising Investments, Insurance Consulting & Technology, and Willis Re & Securities – to gain access to all the relevant market participants. That allowed us to execute the most comprehensive survey yet of the ILS market.”
“It’s the same connected, integrated approach we use daily to develop and deliver ILS advice and solutions for our clients.”
