Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Insurers capital market activity set to continue growing


The future is looking bright for continued growth in insurers use of the capital markets as a mechanism for hedging their risks. We’ve certainly seen no let up in deals and coverage in recent weeks.

Our post the other day referred to the lack of impact being seen from the credit crunch in the catastrophe bond market. Now industry stalwarts are adding their own voices to help broadcast the opportunities available to both cedents and investors alike in the convergence of insurance and capital markets.

Insurance Day is reporting that the lack of correlation between insurance-linked securities and the credit market is helping popularity to increase in the instruments. Despite a slight drop in issuance since the credit crunch began (although that drop can also be attributed to cheaper reinsurance rates and lack of major catastrophes) they say popularity will continue to grow in the long term.

It seems to me that attractive returns for investors are also continuing to help drive the market. The low incidence of deals actually being triggered alongside the ‘better than other asset class’ interest rates are causing increasing numbers of investors and hedge funds to come to the market. This naturally will help keep issuance going as the demand grows.

Freeman & Co. has released a report on financial services deal activity in 2007 with projections for the rest of 2008 and mentions ILS as a growth area which could help drive M&A. They say that ‘rapid growth will continue in capital markets activity involving insurance linked securities, mortality and longevity hedging, CAT and mortality bonds, and sidecars’.

Finally we reported a few minutes ago on the moves by Hawaii to open up their captive insurance market to securitizations, another positive move for the market.

Sentiment such as this is very positive for the market. In a climate where other financial markets are suffering massive contraction it looks like the insurance capital markets are set to flourish. The only thing missing from this is a view of where the next phase of innovation is going to come from. All the above assumes growth based on increased usage of the current range of instruments and alternative techniques available. As we all know this market needs to continue to innovate by providing new and easily accessible methods for hedging risks and continue introducing these techniques to new lines of business. We would welcome your comments if you have any ideas?

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis London 2022 - Insurance-linked securities conference in London

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