James Vickers, Chair of Willis Re International, has said that insurance-linked securities (ILS) investors have showed increasing maturity at recent reinsurance renewals, as demand proved strong at 4/1.
Vickers recently spoke to Artemis alongside the release of Willis Re’s 1st View report, which looked at the main trends of the April renewal period.
In particular, the report noted growing investor demand for publicly traded 144a bonds, which helped to dampen overall program price increases.
Re/insurers generally had no problems in renewing or sourcing new ILS capacity at April, but Vickers explained that there were some changes in the products that were supported.
“The ILS investors are more informed about who and how they support,” he told Artemis. “The product that investors really like now is publicly quoted tradable cat bonds. They offer liquidity and transparency, and investors can move in and out of those. We are seeing that working quite well for investors and issuers.”
However, Vickers also asserted that some of the more “exotic collateralized structures” are not working so well for some investors, and have proved less popular.
“Equally, some reinsurers are doing a great job of building relationships with end investors and putting in place quite interesting and longer-term sidecar vehicles,” he added.
“I think it’s fair to say that there’s been a growing up of the ILS investors, who have become a bit more mature and understanding of what they can offer and how the market works.”
According to Willis Re, the April reinsurance renewals largely saw a continuation of trends seen at 1/1, with market pricing remaining firm in virtually all classes and territories, despite there being no shortage of coverage or capacity.
The Japanese renewals also benefited from prevailing attitudes towards reinsurance in this market, analysts said, due to the necessity of coverage, the long-term view of re/insurers, the relationship-oriented nature of busines, and the disciplined approach of the primary markets.
When it comes to ILS, Vickers acknowledged that the Japanese are in general not huge buyers of cat bonds, but noted that “they do buy them, they’ve renewed them, and it’s been a good diversification in their own reinsurance structures.”
“ILS investors are no different to anyone else involved in writing insurance risk,” he told Artemis. “They want a diversified portfolio. They’d like some Japanese exposure to offset some of their US or European peak exposures.”
Additionally, while demand from ILS investors was seen to dampen price increases to some extent, Vickers does not see the availability of alternative capital as a threat to firming re/insurance prices, which are expected to continue through the mid-year period and beyond.
“I think where ILS did have a bigger impact was on some of the low-level retro protections that reinsurers were buying as that enabled traditional reinsurers to write and continue writing business as they were able to arbitrage very attractive retro covers,” Vickers said.
“Now the ILS market has woken up to that imbalance and I don’t think that we’ll see that being repeated.”
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