Interesting year ahead for healthy, growing ILS market: ILS NYC 2019

A combination of increased demand and constrained supply bodes well for attractive returns for the insurance-linked securities (ILS) sector going forward. And while the market is expected to grow in 2019, it’s likely to tread carefully on the back of two heavy catastrophe years, according to market experts.

Speaking with A.M. BestTV on the sidelines of the third annual Artemis ILS conference in New York City, ILS market experts and executives described a sophisticated and mature marketplace, albeit somewhat more cautious this year in light of recent catastrophe losses.

“It’s a tough one because we are coming off the back of two heavy cat years in a row. Irma is still developing, Maria is still developing, Harvey is still open, the wildfires are still open, and, we’re coming up to a June 1st renewal that as always, will come up faster than anybody is ready for.

“We need to get a real sense of how these historical losses of the last two years are really going to come to bear on the industry for the coming renewal, ” said Tom Johansmeyer, Co-Head, PCS.

Following 2017 catastrophe losses, the ILS market reloaded in time for the January 2018 renewals, but after a second year of significant losses, albeit lower year-on-year, the ILS community is expected to tread carefully in 2019, but this doesn’t mean that continued expansion isn’t anticipated.

Aditya Dutt, President of Renaissance Underwriting Managers, Ltd. and Senior Vice President (SVP) and Treasurer of RenaissanceRe Holdings, Ltd., highlighted a healthy marketplace.

“We think demand is up, supply is constrained from capital providers which bodes well for attractive returns for the sector going forward, and we think that will be a very productive outcome for the year,” said Dutt.

As shown by the Artemis Deal Directory and quarterly catastrophe bond and ILS market reports, issuance levels again broke records in 2018, supported by increased peril and geographical diversification.

Judith Klugman, Managing Director of Swiss Re Capital Markets, a division of reinsurance giant Swiss Re, said the firm is hopeful that this year the market will at least achieve the issuance levels reached in 2018, adding that the pipeline Swiss Re sees combined with investor noise, suggests the market is on the right track.

“It’s a little too soon to tell, but I’m cautiously optimistic that we will hit that target,” said Klugman.

Looking forward, Artemis’ Owner and Editor in Chief, Steve Evans, said that he expects the market to tread carefully as it grows in 2019.

“I think there is an appetite for further growth and there’s definitely opportunities for it. But there’s also a period of reflection required and also some analysis of how things went the last two years, what worked and what didn’t, what changes need to be made and how do we actually make the overall product better both for the clients, the investors, and the cedants. But also, how do we make the operation of ILS more efficient as well,” said Evans.

Bob DeRose, Senior Director at A.M. Best, added that alternative, or third-party reinsurance capital is looking for incremental price improvements and that he thinks these will be achieved. And, furthermore, based on what the market is able to achieve with regard to price increase, “that additional capital could potentially flow into the market at mid-year.”

It’s expected to be an interesting year for the ILS market, with growth expected by many market players and observers, albeit more moderated growth than in recent years.

Brad Adderley, a partner in the Corporate department in Bermuda at global law firm Appleby, said that he expects the traditional ILS fund players to grow and mature further in 2019, as well as the establishment of more rated re companies, ultimately competing directly with commercial reinsurers. At the same time, Adderley said that some of the smaller players are likely to struggle more.

“So, between those two things, I think at the end of the year, on the more exciting side of ILS, not the cat bond side, I think it is going to be a very interesting marketplace when it comes to December 31^st and the renewals for 2020,” said Adderley.

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