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S&P highlights increasing reinsurer reliance on ILS

28th October 2021 - Author: Charlie Wood

A new report from S&P has highlighted reinsurers’ increasing reliance on third-party capital to support their retrocession needs.

S&P Global RatingsIn 2021, reinsurers are reported to have ceded roughly 50% of their exposures at a 1-in-250 return period through collateralised instruments, such as insurance-linked securities (ILS).

S&P notes that around 15% of total reinsurance capital is sourced through ILS issuances, while the share is increasing significantly within the retrocession market.

Analysts expect ILS to increase its market share over the next few years as innovative new issuances address new risks, such as cyber, climate change, and environmental, social and governance (ESG).

“The more peak exposures the reinsurance market transfers to a broad range of ILS investors, the better for the stability of the system and the growth of the market,” said aid S&P Global Ratings credit analyst Maren Josefs.

Gallagher Re

In terms of returns, this year remains uncertain. Given the occurrence of fresh catastrophes, 2021 natural catastrophe losses are likely to exceed reinsurers’ budget expectations yet again.

According to Swiss Re, the first six months of 2021 delivered the second-highest natural catastrophe-insured losses ($40 billion versus a 10-year average of $33 billion).

Winterstorm Uri in Texas in February stands as being the costliest event ever recorded for the peril of severe convective storms and winter storms.

“Despite these setbacks, we expect investor interest in the ILS asset class to remain strong, as long as the market stays disciplined. We therefore expect the ongoing flight to good quality ILS asset managers to continue,” Josefs added.

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