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Original Risk: A Society for Change Agents

Property cat still key area for ILS market growth, cyber close behind


The 2018 Global ILS Market Survey Report from re/insurance broker Willis Towers Watson, shows that for now, property catastrophe remains the dominant line of business and also the area viewed as the most attractive for future growth across the ILS sector.

Whether through a catastrophe bond, a collateralised reinsurance agreement or a fronting arrangement, ILS capital always has, and continues to focus heavily on the property catastrophe business line, and most notably in the U.S.

Driven by necessity, ease of entry, the availability of substantial volumes of historical data and loss trends, combined with some of the world’s most advanced risk modelling capabilities, the entry and expansion of ILS in the property cat space has been profound, and it appears market players expect growth in this area of the market to continue.

According to Willis Tower Watson’s ILS survey report, property catastrophe is still the dominant class of risk in ILS, and, it’s also viewed by survey participants as the most attractive for future growth.

Following property catastrophe risk, respondents see cyber risk as the next most attractive area for future growth, which is closely followed by marine and then terror risks. Aviation and satellite risks were also viewed as a potential area for future growth, notes the report.

The survey results show that while ILS capacity remains skewed towards property catastrophe risks, both investors and sponsors are increasingly looking at other lines of business, including emerging risks such as cyber.

In fact, the survey reveals that almost 75% of funds believe their investor base would support investments in other risk categories, including cyber and marine.

Despite the dominance of the property cat space, the fact the insurance protection gap (disparity between economic and insured losses post-event) exists in developing parts of the world, but also in places such as the U.S., shows that more can be done across the world to protect against natural catastrophe events, which appear to be rising in both severity and frequency.

At the same time, standalone wildfire risks and flood risks have come to the catastrophe bond market for the first time in 2018, as shown by the Artemis Deal Directory, and transactions from companies such as Arch Capital Group’s range of mortgage insurance deals shows how ILS capital is both willing and able to expand its remit in both the property cat space, and other risks and regions.

Also read:

Enthusiasm for ILS intact, seen as positive for market = growth expected.

Diversification drives ILS investor allocations more than returns.

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