Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Reduction in opportunistic ILS capital positive for investors: Entropics CEO


For insurance-linked securities (ILS) investors with a longer time horizon, the declining interest from opportunistic investors is a positive development, according to Robert Lindblom, the Chief Executive Officer (CEO) of Entropics Asset Management AB.

In a recent newsletter, the CEO of the Swedish catastrophe bond fund manager notes that following the high level of catastrophe losses experienced in 2017, opportunistic investors entered the ILS space on the expectation of rate increases.

While rate increases did materialise at the key January 2018 renewals, the reloading and influence of alternative capital, including capacity from opportunistic investors, dampened rate improvements, and competition remained high.

Throughout the year rates continued to fade, although the catastrophe experience of the second-half of this year has driven an expectation of rates being flat to up at the upcoming January renewals season.

“As we now soon close the second consecutive year with catastrophic events affecting the ILS market, industry actors believe in decreasing interest from these opportunistic investors,” says Lindblom.

He continues to explain that as a result, these investors are evaluating their allocations to the space and trying to “pick correctly the short-term timing on entering and leaving the ILS market.”

Some industry commentary has noted a potential reduction in the availability of ILS capital at 1/1, and this could be in part owing to the reaction of these types of investors to recent cat events.

Lindblom states that investors with a longer-term view to the market, the decrease in capital from opportunistic investors is “encouraging,” as it will drive up premium rises at the renewals.

“In the second half of 2018, some significant loss events have occurred, driving the year’s total losses, possibly with an effect on the upcoming renewals,” adds Lindblom.

Discussions around a reduction in the supply of capital, combined with recent losses and the potential positive impact this has on rates, are increasingly common in the ILS sector as the market approaches 1/1.

The ILS community reacted well and showed its value following the events of 2017, and so it will be interesting to see how market participants respond to a second-year of cat losses and an expected reduction in available capital.

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