ILS to show it’s “an integral part of the system” after hurricanes: JLT Re

As the markets begin to take stock and readjust to the impacts of two of the most devastating hurricanes the U.S. has seen in recent years, JLT Re executives feel confident the insurance-linked securities (ILS) sector will show its value and capabilities post-event.

JLT Re executives, speaking at the recent Monte-Carlo Rendezvous de Septembre during a press briefing, said the alternative reinsurance capital segments affected by Harvey and Irma are expected to demonstrate their value to the market.

“We don’t really have any particular concerns. We think the response is going to be robust. The market has never been better equipped to respond to this,” said Mike Reynolds, Global Chief Executive Officer (CEO) of JLT Re, referring to the expected response of both the traditional and alternative reinsurance markets.

“Is this a good opportunity to test that thesis? Absolutely. But we are confident. We wouldn’t advise our clients in the way we do to mix their coverages between reinsurance and ILS if we weren’t confident they would respond in the way they do,” he continued.

Ever since alternative capital really started to expand and cement its place in the global reinsurance market, questions have been raised about both its permanence and ability to pay claims, with some suggesting the market is untested.

However, and as highlighted by industry experts and analysts, many traditional Floridian players are also relatively untested post-recent events, underlined by the much-discussed benign catastrophe experience of the last few years.

But despite the concerns of some, JLT Re executives expressed confidence that ILS will show its capabilities during a testing time for the catastrophe risk transfer space.

“ILS will demonstrate that it’s an integral part of the system, it will payout quickly. We are quite bullish that the market will perform appropriately,” said Gregg Holtmeier Executive Vice President (EVP), JLT Re.

What the actual impact to the insurance, reinsurance and ILS industries will be from both events is unlikely to be understood for some time, and for ILS investors it’s more than likely a new experience.

However, investors and managers in the space are considerably mature and sophisticated, and while the loss environment has been benign, it’s always been a matter of when the next major event happens, and not if.

Convergence capital continues to expand, albeit at a slower pace than before, driven in part by the persistent softened landscape that is driving down rates. But the low correlation and diversification benefits provided by the ILS space remain attractive to investors, and it’s been suggested that regardless of recent events, capital is ready and waiting to enter when the opportunity presents itself.