Discipline largely very high across reinsurance and ILS: Hilti, Credit Suisse Asset Management

Despite feeling that reinsurance and ILS pricing has not risen by as much as it should have, Niklaus Hilti, Head of Insurance Linked Strategies at Credit Suisse Asset Management, believes that the market has largely displayed very high levels of discipline lately.

Artemis spoke with Hilti recently and sought out his views on the marketplace.

He seems broadly comfortable with how the ILS market and reinsurance in general reacted to the challenges of multiple years of significant catastrophe losses and then the challenge of a global pandemic.

When asked how market participants have behaved after these loss events, Hilti explained, “Of course, one could argue that premiums have not climbed as much as expected for 2020, but the fact that premiums have increased in almost all regions shows that discipline in the market has greatly improved. This is in contrast to 2006, when we only witnessed rising premiums in the US. Currently, we are also seeing premium adjustments in markets that have been stagnant for a long time, such as Europe.”

However, Hilti highlights that catastrophe bonds rates remain largely high despite recent softening.

“In the Cat Bond market, on the other hand, we observed some market participants acting less disciplined. Nevertheless, we consider the current market environment with elevated premiums and growing volume to be healthy,” Hilti continued.

Hilti said that the recent rate firming benefited the Credit Suisse ILS strategies, and “Most market segments and regions achieved solid margins.”

With hurricane season now underway and a significant loss coming from hurricane Ida, once that is calculated, Hilti wouldn’t be drawn on a forecast for the end of year renewals.

But he does feel that additional firming of rates may be more limited as we move through the remainder of this year and towards January 2022 renewals, with ILS capital likely one driver of this.

“It’s too early to say but, in the absence of large catastrophic events, we see that the ILW market has peaked in June 2020, the Cat Bond market has peaked in Q4 2020 and the retro market probably has peaked in 2021.

“The only market where we expect a further margin increase is the reinsurance market.”

Recent events may support this view, as losses in Europe from flooding, plus hurricane Ida and the effects of higher-frequency in storm losses across the US, could all stress reinsurance programs again this year.

In addition, there is the continued threat from COVID-19, as the pandemic is not over and the market has not fully dealt with its exposure to it.

Hilti commented, “We created side pockets related to uncertainty around COVID-19 back in April 2020, which proved to be the right decision. We expect the uncertainty to remain high and continue into 2022 (the pandemic itself as well as (re)insurance claims related to business interruption).

On the investor side, the higher premium rates and fact the ILS market is moving beyond some of the challenges of recent years, has been helping to build investor confidence, Hilti believes.

“We are seeing a pickup in demand, but in a very healthy way, as investor appetite is not outstripping opportunities and market growth – at least for now,” he explained.

But Hilti is in no hurry to expand the core business of the Credit Suisse Asset Management ILS team.

“We currently underwrite specialty insurance only to a limited extent and believe that it is a very challenging and highly volatile business in the current market environment. For example, the aviation market was heavily affected by COVID-19, but the cargo market has also been very volatile over the last year and a half,” he said.

We also asked Hilti for his views on what challenges or issues the ILS market needs to overcome to put itself back on a stronger growth trajectory for the future.

He responded, “We believe that the property catastrophe segment has expanded so much that the growth potential in the future will be limited and saturation has been reached. However, we see some growth potential and room for innovation in the life insurance market, which is currently a key focus for us.”

Read all of our interviews with ILS market and reinsurance sector professionals here.