The Brave New World

15 July 2018

ILS Market Update, July 2018

Our July Newsletter provides some selected key developments in the ILS market during the first half of 2018 and a more in depth analysis of Lloyd’s Central Fund.

Reinsurers will have to transform from risk hoarders to risk originators

The 2018 renewal season, following one of the busiest CAT years in the recent history, was for most reinsurers very disappointing. Surely, they hoped, premiums would go up while ILS capacity may not reload to the same levels. Unfortunately, actual events in the first half of 2018 were very different from this vision painted by many in the fourth quarter of 2017.

• Aggregate ILS fund managers assets-under-management have neared $100bn by mid-2018, according to Artemis, despite the fact that five ILS funds investing in private contracts and collateralized reinsurance fell to negative returns earlier this year.
• The ILS market, including non-traditional or alternative sources of capital, gained more ground at the prime mid-year (June 1st and July 1st) reinsurance renewals both in terms of market share and also, perhaps more importantly, equivalence of coverage offered.
• Willis Re’s latest reinsurance market report (April 2018) explains that the combination of excess traditional capital, growing ILS capital and net retention of much of the losses from last year by major carriers, have all driven rates for the property catastrophe reinsurance renewals to a disappointing conclusion for most.

The result was best summarised by Nephila founder Greg Hagood: “The implications for reinsurers are clear as their cost of capital is higher than fund managers and the re-pricing that everyone was waiting for post event didn’t happen to the degree that people thought. With these two ingredients, reinsurers now have an interesting strategic challenge as to how they respond. Our view is that they will likely transform more to originators for risk and less holders of risk over the long term.”

“It’s coming home”

As of June 2018, the first full UK domiciled catastrophe bond, the $300mm Atlas Capital UK 2018 offering catastrophe reinsurance cover to SCOR, is now a reality. The decision by SCOR, a leading global reinsurer, to utilise the new UK regime was a bold decision and is a major boost for the competitiveness of the nascent UK ILS (re)insurance industry.

Wouldn’t it be great if a leading London Market name such as Lloyd’s were to keep that momentum going for the UK?