Analysts at JP Morgan have suggested that the strong performance in the insurance-linked securities (ILS) asset class in 2023 is likely to be reflected in the results of European reinsurers.
JP Morgan’s analysts said that following several difficult years for the asset class, ILS produced a record return in 2023 of ~14% for the year.
According to the Eurekahedge ILS Advisers Index, which is available to view at our sister publication, Artemis, the exact figure for the 2023 return is 14.12%, up from the 2022 return of -2.21%.
The Eurekahedge is useful, as it is the first benchmark that allows a comparison between different ILS fund managers in the ILS, reinsurance and catastrophe bond investment space.
JP Morgan highlighted that the return figure reflected some repricing but also a relatively light year for big-ticket catastrophe losses during the year.
The firm’s analysts added, “The return was far higher than recent years with the 2023 return more than the sum of the previous 9 years with some of these suffering from material levels of catastrophe loss.
“The previous high return for the asset class was in 2007 when it was far smaller than it is today with ~13% return.”
However, despite excellent returns in the far stronger operating environment, JP Morgan underlined that the track record of the asset class as a whole “is still mixed”.
“The rolling 10-year average return is 2.3% but clearly has the momentum to improve materially due to a greater focus on severity risks and improvements in pricing and terms,” the firm’s analysts explained.
Meanwhile, it is well reported that catastrophe bonds had a strong year, with JP Morgan reporting that there was a total of ~$16.5bn issued in the year, with a net issuance of ~$7bn in 2023.
As per full-year data from the Swiss Re Cat Bond Performance Indices, the total return of the outstanding catastrophe bond market in 2023 reached a record level of 19.69%.
According to Artemis, while the Index “failed to reach the magic 20% mark” by the end of the year, it has still “set an extremely high bar” in 2023 for any future years to compete with.
JP Morgan’s analysts continued, “We see this part of the asset class doing what investors expect it to, and only being triggered by tail events rather than the frequency type losses we have seen in recent years.”
The Guy Carpenter Global Property Rate on Line Index, which serves as the proprietary index of global property catastrophe reinsurance Rate-on-Line movements, on brokered excess of loss placements, (also available at Artemis), rose by 5.4% at January 1st 2024, reflecting further increases achieved on global property catastrophe reinsurance contracts by reinsurers at the renewals.
The pace of change slowed considerably for 2024, dropping from the 27.2% gain at 1/1 2023 and the 29.3% for full-year 2023. Though the fact rates have risen further for property catastrophe risks around the globe, suggests another profitable year, should loss activity allow.
