This is the first in a series of articles featuring the thoughts of leading figures in insurance-linked securities (ILS) and reinsurance on the market as we move into 2015. The first piece features Diego Wauters, CEO of ILS specialists Coriolis Capital Limited.
We asked for participants thoughts on the prospects for the ILS market, catastrophe bonds, collateralized reinsurance and reinsurance or catastrophe risks as an asset class in 2015.
Diego Wauters, Chief Executive Officer of insurance and reinsurance-linked investment fund manager Coriolis Capital Limited, is the first respondent to give us his thoughts in this series of pieces on the continued development of the ILS market in 2015.
His response follows in full below:
Most (re)insurers have profited this year from an absence of major natural catastrophes and another quiet Atlantic Hurricane season. Large capital inflows into ILS have emphasised the resulting compression of reinsurance rates and spreads. However, large traditional reinsurers still dictate rates as ILS represents less than 20% of total reinsurance.
Many expect spreads to decrease further until a major catastrophe occurs. However, we have seen that prices in ILS have a floor, as investors have rejected deals with very thin margins. Recently, larger primary issuances have even priced in the middle to higher end of their guidance price which is encouraging for the future.
Insurers increasingly see ILS as an alternative to traditional reinsurance due to the quality of the collateral offered. Outstanding Cat Bonds are now at a record level of $24bn. Collateralised Reinsurance has also increased in size to be almost level with Cat Bonds. Soon we may see an increase in ILS transactions covering catastrophic risk in developing countries and Cat Bonds issued directly by corporate companies, cutting out insurers in the middle.
Despite their current low level due to the soft reinsurance cycle, spreads in ILS have consistently been higher than their equivalent in fixed income. The floating rate nature of these products should prove advantageous when Quantitative Easing stops and interest rates rise again.
Our thanks to Diego Wauters for his time.
Artemis’ Q4 2014 Catastrophe Bond & ILS Market Report – A busy finish to a record year for ILS
We’ve now published our Q4 2014 catastrophe bond & ILS market report.
This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the fourth-quarter of 2014, looking at the new risk capital issued and the composition of the cat bond & ILS transactions completed during Q4 2014. It also includes a brief review of the full-year 2014’s record issuance.