The rise of catastrophe bonds and insurance-linked securities (ILS) issuance in the global reinsurance marketplace is not a market disruptor, but supportive and supplementary to the global reinsurance market, according to SCOR’s Dennis Kessler.
With so many headwinds continuing to test the global reinsurance market, including excess capacity, the benign loss experience, low interest rates and wider economic issues, much discussion in the reinsurance sector concerns disruptive market forces.
In recent times the rise of catastrophe bond issuance and other features of the ILS marketplace, such as collateralised reinsurance placements, has grown to a meaningful size and really started to have an influence on the reinsurance industry, contributing to the reduction of rates and the large volume of excess capital.
As the wealth of third-party capital really started to expand industry observers and analysts noted its presence as disruptive force that was driving increased competition. However, in today’s market the majority of reinsurers now work with ILS in some form or another, utilising its benefits to supplement their balance sheets and support their portfolios, something highlighted by Dennis Kessler, Chairman and Chief Executive Officer (CEO) of SCOR.
Speaking to an audience at the SCOR press briefing at the 2016 Monte Carlo Rendez-vous, Kessler explained that a large number of cat bond issuance comes from the reinsurance market, which utilises ILS structures to support the global marketplace.
“We use the cat bonds to expand the capacity, so cat bonds are supplementary to reinsurance, it is not a disruptor,” said Kessler.
It’s an interesting and valid point, and also refreshing to hear such a dominant reinsurer highlight the benefits catastrophe bonds can bring to a reinsurer and also to the broader marketplace.
According to data from the Artemis Deal Directory three outstanding catastrophe bond issuances are sponsored by SCOR, with a total market value of just below $600 million. In fact, the Artemis Deal Directory shows that since the market’s inception SCOR has actually sponsored 13 cat bond transactions, covering a range of perils across various locations, including the U.S., Japan, and Canada.
The global reinsurance market continues to expand, and at the same time ILS capacity continues to deepen its relationship with the re/insurance sector and increase its share of the overall reinsurance market size.
A recent report from Aon Securities, ILS capital grew to $75.1 billion by the end of June 2016, an increase of 10% over the last year, highlighting its ever-expanding influence on the global reinsurance industry.
SCOR clearly understands and appreciates the benefits of working with ILS capacity and features to support and supplement its business, utilising a diverse range of capital from mature, and disciplined capital markets investors.
The continued growth of the space and positive views on its presence by influential market players such as SCOR, which is one of Europe’s big four reinsurers, underlines its importance in the global re/insurance space, and should support the trend of increased acceptance of the asset class by more and more insurers and reinsurers.