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ILS funds facing excess capacity after June renewal: TigerRisk


The ILS and collateralized reinsurance market is facing its own excess capacity issue currently, with a number of ILS fund managers still having capital to deploy even after the key June Florida renewals, according to TigerRisk Capital Markets & Advisory.

TigerRisk PartnersToo often we discuss the excess levels of capital and capacity held by traditional reinsurance companies, but right now the ILS market has been raising new funds and not all of it has been deployed as of this time.

“At this point in the market we are seeing a fair amount of CAT capacity left to deploy from several ILS funds due to capital inflow into existing and new funds,” explained Philipp Kusche, Partner and Global Head of Insurance-Linked Securities (ILS) and Capital Solutions at TigerRisk.

This excess capital will have helped to stimulate some of the pressure seen on pricing at the June reinsurance renewals, when rates fell perhaps further than had been expected.

TigerRisk Capital Markets and Advisory, the investment banking and ILS focused unit of the specialist reinsurance broker and risk to capital strategic adviser, operates in the collateralized reinsurance, catastrophe bonds, industry loss warranties and parametric markets, in both reinsurance and derivative form.

As a result the broker has a good handle on the state of the market at this important mid-point of the year, when ILS fund managers are typically reflecting on their portfolios post-renewal.

As a result of the underwriting and capital allocation undertaken in June, many ILS funds are looking to hedging at this time of the year.

Patrick Gonnelli, Partner and Global Head of ILS Distribution and Trading , TigerRisk Capital Markets & Advisory, commented on ILW market activity; “Clients throughout the year have continued to hedge their portfolio in this soft market using ILWs as way to stay on business that did not meet certain risk metrics, satisfy their investors hedging requirements or to manage against an outsized loss compared to their peers who have bought retro in one form or another.  ILS Funds continue to be the main buyers of the ILW product.

“The product in most demand from buyers the last few years has been the Uncapped Aggregate ILW for peak territories with a minimum industry franchise.”

As the ILS fund sector has grown and ILS managers have increased their assets under management, resulting in much larger and often broader portfolios of risk, the need to hedge has increased.

The focus of many ILS funds on Florida and U.S. peak peril risks, as well as the dominance of multi-peril and multi-region coverages, mean that hedging with the ILW product is a good way to protect themselves against the catastrophe events that could have a major impact on the reinsurance industry.

Gonnelli also told Artemis that the catastrophe bond market, which has seen record levels of issuance activity in the second-quarter, has not yet stimulated the secondary activity that would be anticipated.

“Secondary volume in April/May has been light due to markets concentrating on all the new CAT Bond issuance.

“With new issuance starting to slow down and cash left to deploy in the market, June has seen some increased activity and is heavier now on the bid side.  Funds continue to look for diversifiers away from US Wind,” Kusche explained.

With capacity still to deploy ILS funds will be looking to the few reinsurance renewals that get completed at July 1st, as well as the cat bond market and any ILW opportunities that come up, to put excess capital to work.

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