ILS capital returns to previous record level of $97bn: Aon

Helped by a record period of catastrophe bond issuance in the first-half of 2021, alternative capital levels in reinsurance, largely in insurance-linked securities (ILS) formats, have now returned to their previous record year-end level of $97 billion, according to Aon.

As of the half-way point of 2021, Aon’s Reinsurance Solutions counts total global reinsurance capital as having reached a new high of $660 billion.

That’s increased by just over 1.5% since the end of 2020, as additional capital raises, positive performance and retained earnings, as well as ILS market expansion, drove the global reinsurance capital base higher again.

Traditional reinsurance capital grew from $556 billion at the end of 2020 to a new high of $563 billion at the end of June 2021, which is a growth rate of 1.25%.

However, alternative reinsurance capital and ILS grew faster, by almost 3.2%, from $94 billion at the end of 2020, to reach its all time high again at $97 billion by the end of the first-half of the year.

The last time ILS and alternative capital in reinsurance was measured at $97 billion by Aon’s Reinsurance Solutions was at the end of 2018.

While the growth rate remains far slower than the near or above double-digit growth rates seen five or more years ago, the recovery has been sustained and importantly, recent growth of the insurance-linked securities (ILS) market has been consistent.

Speaking during a media briefing today, Mike Van Slooten, Head of Business Intelligence at Aon Reinsurance Solutions, discussed market capitalisation.

He explained that ILS capital has continued to grow and encouragingly highlighted, “That area of the market has now seen four-quarters of consecutive growth.”

Van Slooten highlighted the record level of catastrophe bond issuance seen in the first-half, as one of the drivers of the ILS market’s expanding capital base.

Van Slooten also noted that the strength of the catastrophe bond market is also providing “competitive tension” in reinsurance, which refers to the tightening of cat bond pricing through the first-half of 2021 and the fact cat bonds offer increasingly competitively priced reinsurance capacity.

Interestingly, the growth of the ILS market this year has largely come in the first-quarter of the year it seems, as Aon had reported ILS capital as having recovered to $96 billion by the end of Q1, suggesting only another $1 billion was added in Q2 of 2021.

In the catastrophe bond market in particular, relatively significant capital raises were completed in the first-quarter, but put to work in the second, while on the collateralised reinsurance side, smaller capital raises were made for the mid-year renewal season, which likely explains this dynamic.