The collateralized reinsurance sidecar segment of the insurance-linked securities (ILS) market could be the last to rebound, as investors remained “skittish” of these structures around the beginning of the year, Cory Anger of GC Securities said.
Speaking with Artemis in an interview during the first-quarter, Cory Anger, Managing Director at GC Securities, the capital markets and insurance-linked securities (ILS) arm of reinsurance broker Guy Carpenter, said the 144a catastrophe bond is the most favoured part of the ILS asset class at this time.
Having forecast cat bond issuance could reach $11 billion in 2023, Anger suggested that not all segments of the ILS market will receive equal attention from investors this year.
The reinsurance sidecar market is one piece of the market that is expected to remain core to it, but is likely to take longer to recover from the losses and reduction in deployed capital of recent years, making sidecar fundraises still more challenging.
Anger explained that, “Improved pricing terms may help the tone of the sidecar market.
“However, investors are still skittish of the unexpected and/or larger than expected losses that have affected sidecars over the last 5 years.”
“Interested investors will continue to demand improved/streamlined risk structures from high quality partners only,” she added.
Further stating that, on sidecars, “The market continues to exist but we still expect this to be the last ILS segment to rebound whereas 144A cat bonds remain the most favoured type of ILS investment.”
However, Anger does see some opportunities for the ILS market to expand its remit, beyond the more traditional property cat reinsurance and retrocession.
In particular, Anger feels that the excess and surplus (E&S) property marketplace could be ripe for more ILS market participation.
“We believe the E&S property line is the most likely to see an expansion in the ILS investor base,” Anger said.
On the potential for more ILS market innovation, to open up new capital deployment opportunities, Anger suggested that during a hard market participants could be more focused on doing more of the same.
She explained, “While in hard markets, innovation will continue albeit at a slower pace… it is most typical when the deal environment focused on “back to basics” to focus on core needs.”
Adding that, “In the near term, we see the core growth to come from property cat insurers and reinsurers.”
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