Alternative reinsurance capital and the insurance-linked securities (ILS) market is going through a period of transition, where there has been some uncertainty, but still Torsten Jeworrek, member of the board of management at Munich Re, believes it is here to stay.
Speaking in Monte Carlo during the annual Rendezvous event last week, Jeworrek highlighted that it is clear “alternative capital is more or less in a kind of transition, an uncertain situation,” going on to explain that alternative reinsurance capital providers have had a tough time over the last two years.
“Why? Because it has had to deal with two consecutive years – 2017 and 2018 – of pretty severe losses, which led to some surprise in terms of profitability. So not only the hurricane losses of 2017 affected this capital base, but also the wildfires, and aggregate covers were affected,” he said.
Continuing to explain, “The second problem was that because of these losses a quite significant amount of this capital – because of the structure of alternative capital – remained locked in.”
But still the amount of total alternative reinsurance and ILS capital remains somewhere around the $95 billion to $100 billion mark, Jeworrek estimated.
Despite all of the impact of catastrophe losses and loss creep, “That is pretty stable I would say,” Jeworrek stated.
In addition, alternative capital hasn’t changed its focus he noted, highlighting that still, “The concentration and focus of this alternative capital base is unchanged. It’s the east coast of the United States and in particular it is Florida.”
But despite the losses, challenges that resulted from them and the continued concentration into peak catastrophe zone regions of the world, Jeworrek feels alternative reinsurance capital is here to stay.
He explained, “From the current developments I’ve seen there was a lot of noise, particularly after the wildfire losses last year. While of course there were changes in the alternative investor community. Some restored capacity, some disputed and argued, some redeployed capital in different segments and different products. But overall the capacity in the market is unchanged.”
This has highlighted the staying power of the ILS market to him, leading Jeworrek to say, “If after such a series of events the alternative capital survived and accepted these losses, then my best perspective is that it will stay in the market.
“That doesn’t mean that each investor will stay in the market, but the capital as a whole I would say is here to stay.”
A transition of ILS, in this case, is a good thing as it implies a period of reflection and adjustment to the experience of recent years. Which bodes well for creating more robust investment solutions for clients, while building a market platform that can support further ILS sector growth in years to come.