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ILS capital needs to see proof-points before meaningful inflows: Hiscox CEO


Insurance-linked securities (ILS) capital providers need to see “proof-points” of the market delivering on its promises and ultimately returns, before any meaningful inflows return to the collateralised reinsurance side of the ILS market, Hiscox Group CEO Aki Hussain explained today.

aki-hussain-hiscox-ceo-ilsDiscussing the state of ILS and third-party reinsurance capital, Hussain pointed out through his comments on an earnings call today that investors are keen to see the deliver of results that evidence improvements in portfolios, terms and pricing.

Hiscox ILS, the insurance and reinsurance firm’s dedicated ILS fund manager, has itself experienced some outflows of investor capital through the first-quarter of 2023, but remains committed and actively in discussions with investors to be ready when inflows return to the space.

Asked about the state of the ILS market and Hiscox’s positioning in it this morning, Hussain said the company remains engaged.

He said that “The market remains in flux, without any major inflows,” but added that the catastrophe bond sector is seeing more investor interest at this time.

On the collateralised reinsurance and private ILS fund side, Hussain said that there are two dynamics in-play that are affecting investor appetite for the asset class and holding back inflows.

“Third-party capital, ILS capital, wants to see some proof points,” he explained, adding that investors in ILS have experienced as many as five years of catastrophe loss activity.

“As a reminder 2022 was another year of $100bn of losses. So they want to see that play out,” Hussain said.

“So I think you’ve got to get around the next season of results, say March or April, to see how the cat season plays out,” he continued.

He added that, “What that could mean is that the meaningful renewal of 1/1 could miss that capacity,”  which implies that he believes inflows may not have returned in earnest by the January 2024 renewals, with some investors still waiting out the arrival of certain proof-points.

However, this means capacity may not be boosted significantly in reinsurance and so Hussain said, “We remain positive on rate through 2023 and into 2024.”

He further explained that the other dynamic is the increase in risk-free rates, which has driven more choice for investors, with more meaningful returns now possible in some traditional assets.

Overall though, he said that Hiscox remains focused on its ILS strategies.

Explaining, “We remain very engaged with the ILS market and, as and when that capital chooses to come in, we remain well-positioned for the ILS market given the optionality our Re & ILS platform provides.”

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