ILS to become more prevalent in 2019, more ILS M&A expected: Sidley Austin

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Alternative risk transfer and ILS mechanisms in the global property and casualty (P&C) market are expected to become more commonplace in the months and year ahead, according to law firm Sidley Austin’s Global Insurance Review.

sidley-austin-logoIn addition the law firm believes that we haven’t seen the end of M&A activity in the ILS space, suggesting there could be more forays to acquire ILS fund managers in the coming year or more.

The firm’s recent publication explores the global insurance and reinsurance industry in 2018, including the ever-expanding alternative risk transfer space.

Sidley Austin notes continued growth of the insurance-linked securities (ILS) market in spite of two consecutive years of heavy catastrophe losses, explaining that it expects market growth to persist in 2019.

“As in 2018, we expect that ART mechanisms in the P&C market will continue to become more prevalent in the year ahead, and the insurance asset class, as a whole, will continue to attract new participants and new capital, particularly following the ILS market’s response to 2017 and 2018 events,” says the firm.

In today’s re/insurance industry, the majority of global players now leverage third-party, or alternative reinsurance capital in some form.

Sidley expects that traditional players will continue this trend and search for new and innovative ways to utilise ILS.

“In addition, we expect that the ILS market will continue to expand the lines of business and perils covered as investors become increasingly sophisticated and able to assess a broader set of risks,” continues the law firm.

Sidley highlights emerging and complex exposures such as cyber and flood as potential growth opportunities for insurers and reinsurers – exposures so vast that it’s expected more than just the traditional base of insurance and reinsurance risk capital is required to both adequately and effectively provide solutions.

The Global Insurance Review discusses various sub-sectors and topics within the ILS market, revealing that growth is expected to come from a number of angles, including a continuation of increased sidecar growth, catastrophe bond market expansion, and also the continued de-risking of the National Flood Insurance Program (NFIP), as well as ILS initiatives in emerging domiciles such as the UK and Asia (Singapore).

Furthermore, following the acquisition of Nephila Capital by Markel, Sidley expects more merger and acquisition (M&A) activity to occur in the ILS space as insurers and reinsurers “look to leverage the capital markets and provide efficient solutions to their customers.”

According to Sidley, the extensive use of ILS structures and capital in the P&C market, combined with the sector’s impressive response to 2017 and 2018 catastrophe events, once again demonstrated its importance and value as an alternative to traditional re/insurance solutions.

The market continues to expand its remit and reach new heights, supported by growing investor sophistication, a trend that shows no sign of stopping anytime soon.

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