Fitch says Solvency II could result in catastrophe bond issuance increase

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Fitch Ratings issued a report which looks at the current state and outlook of the reinsurance market. The report, Fitch’s 2010/2011 Reinsurance Review and Outlook which you can download from their website, looks at how the market has progressed and suggests possible trends to watch for in the coming year.

They highlight Solvency II as big change for the insurance industry and cite the potential need for insurers to purchase more reinsurance to meet capital adequacy rules as a possible reason for increased interest in insurance-linked securities and catastrophe bonds. The changing rules that are due to come into place in 2012 as a result of Solvency II certainly could see a higher profile for catastrophe bonds and European insurers may find they are a cost effective way to increase their levels of reinsurance.

The regulatory regime post-Solvency II looks like it will prefer fully-funded vehicles for reinsurance, again a hint that catastrophe bonds may come into favour.

We’ll have to wait and see once the final regulatory landscape is clear and Solvency II is implemented but it could turn into a positive for this market.

We know their are people out there reading this who will disagree and have thoughts about why Solvency II isn’t a positive thing for the ILS and cat bond markets. We’re interested to hear your opinions so please contribute by commenting below.

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