ILS & collateralised share of U.S. reinsurance programs growing: Willis Re

ILS and collateralised markets are growing their share of U.S. property catastrophe reinsurance programs, at both national and regional level, as the capital markets continues to become an essential component of many insurers risk transfer arrangements, according to Willis Re.

Speaking today in Monte Carlo at the 2015 Rendez-vous, executives from reinsurance broker Willis Re explained that the collateralised product continues to gain favour among cedants, helping it to an increasing share in the U.S. market.

James Kent, President of Willis Re North America, explained that the ILS market continues to make headway into the U.S. reinsurance market and that this trend is expected to continue.

He began by sharing a statistic on the market. Of Willis Re’s 10 largest U.S. property cat placements, more than one-third (Kent estimated nearer 40%) is placed with collateralised markets. This figure includes catastrophe bond use, but it’s a stunning example of the ILS markets reach, importance and perhaps the beginning of dominance in certain areas of property catastrophe risk.

Kent said that as a result of the ILS markets expansion, it is now increasingly being seen supporting regional property programs, where as it had historically been more or less restricted to the large national accounts.

As a result of this, more competition is expected on regional property lines.

“I think I’d put that down to the fact that the collateralised markets up to now had focused, not exclusively but largely on the larger accounts. They certainly want to play more on the regional accounts, not to say that they haven’t, but we’re seeing more activity there,” Kent explained.

The growth into regional accounts has been driven largely by collateralised reinsurance, rather than cat bonds, but there may be room for growth of the private cat bond in these market sectors and we could see smaller regional insurance cedants increasing their relationships with the capital markets going forwards.

“The collateralised markets are managing to grow market share on the large property cat placements,” Kent continued.

So ILS participants are also gaining more share of the national and large account property catastrophe risk in the U.S. as well, which at a time when insurers are consolidating their reinsurer panels is positive for the ILS markets continued growth and demonstrates its growing importance to the insurance community.

Kent said that ILS and collateralised markets ability to offer limit which combines per-occurrence and aggregate cover is making the product attractive, as buyers seek to maximise their spend.

As reinsurance buyers seek to maximise the efficiency of their coverage, minimise costs and get the most flexible capital solutions they can purchase, this trend could continue.

It bodes well for continued growth of the ILS market, as third-party investors increasingly back this core insurance market. It also provides ample capacity should growth opportunities emerge, which even in the saturated U.S. market is a distinct possibility with the potential for flood risk, parametric products and other innovations likely to call on the capital markets for additional support.

Read all of our Monte Carlo Rendez-vous 2015 coverage here.