The insurance-linked securities (ILS) market continued its growth this year, with the value of non-life capacity issued and outstanding at the end of the third quarter at a near-record high of US$27.3 billion.
A report from Willis Re showed that the ILS sector had reached a “dynamic equilibrium” and is well-positioned for further growth. And despite the losses and related loss creep of the past several years, alternative capital in all its forms is growing again.
However, the report warned that some managers, sectors, and strategies remain under stress. Additionally, reduced loss creep, higher premiums, and the associated improved risk-return profile have provided a tailwind which should prompt new issues.
“The ILS market is at an important inflection point,” said William Dubinsky, managing director and chief operating officer at Willis Securities. “Starting in Q4, but with more effect in 2020, we expect growth in the more liquid forms of ILS, particularly catastrophe bonds. Some investors are realigning their portfolios towards investments with lower projected losses, as they see increasing relative value at the more remote end. That could bode well for cat bonds.
“Sidecar interest has picked up as well, but the extent to which this interest will translate into completed deals will depend very much on the specific opportunities presented to investors. Not all deals will meet their increasingly stringent criteria.”