Best’s Commentary: Insurance-Linked Securities Market Looks to Future After Servicing Record Cat Losses

OLDWICK, N.J.--(BUSINESS WIRE)--The estimate for reinsurance capital provided by the insurance–linked securities (ILS) market, sometimes dubbed alternative capital, ranges from $88 billion to $93 billion, according to a new AM Best commentary.

The Best’s Commentary, titled, “Insurance-Linked Securities Market Looks to Future After Servicing Record Cat Losses,” states that a series of catastrophe events put the ILS market to a severe test as it seeks a path forward. This market experienced catastrophe losses exceeding $220 billion from July 2017 through December 2018, the first time losses reached that threshold in an 18-month span. The only other period the ILS market faced high catastrophe losses was in 2011 (after the Japan and New Zealand earthquakes, U.S. hurricanes/windstorms and Thailand floods), when this market was still in its nascent stage of development.

The report outlines several broad themes that have crystallized in recent years, such as: investors have been surprised by the magnitude of losses and the uncertainty around the loss figures for some of the catastrophe events; there is a need for more standardized investor reporting; the rights of investors and cedants are more in focus than before; and the ILS market is devising new fronting solutions for facing cedants and mitigating trapped capital.

“Of late, ILS investment managers have focused on a new way to access the reinsurance market through fronting reinsurers that are either owned by the ILS funds or have been set up and/or managed by such funds,” said Emmanuel Modu, managing director, AM Best Rating Services. “This is a solution some funds have actually implemented and others are contemplating.”

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=295235.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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