The insurance-linked securities (ILS) market continued to grow in 2018, reaching US$93 billion of outstanding non-life capital, according to a study by Willis Re.
In its recent ‘ILS Market Update’ report, the reinsurance arm of the global broking giant noted that the growth trend continued, despite a slowdown during the final quarter of the year as well as multiple smaller catastrophic events in 2018 and a meaningful series of catastrophes in 2017. This led to US$9.2 billion of new capital being delivered, marking the second most active calendar year in the market’s history.
Furthermore, of the US$535 million in bonds issued during the fourth quarter, US$125 million provides protection from California wildfire liability, US$200 million grants peak multi-peril protection, and US$210 million covers US earthquake (workers’ compensation), the report said.
The study also found that lines of demarcation within the ILS space are blurring, due to ceding companies and intermediaries looking to the range of cat bonds, sidecars, and other collateralized ILS, to identify the best tools to meet specific challenges, continue to develop new solutions, and refine existing structures. This, it added, should help the ILS market to overcome concerns including prompt loss reporting, valuation accuracy, collateral release and rollover, and increasing volatility. Two-way transparency both for ceding companies and investors is key, and solutions to many specific challenges seem close at hand.
“We are seeing the convergence of convergence,” says William Dubinsky, managing director and head of ILS at Willis Towers Watson Securities. “The overall ILS figure is today a much more meaningful measurement of market size than focusing on cat bond and sidecar issuance alone. ILS capacity and products are growing organically and dynamically as gaps between different products and subsectors fill in, and innovation and market necessity create new capacity and products. Our confidence in the speed that new solutions will emerge gives us a favourable outlook for ILS in 2019.”