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Insurance-linked securities market tops $153 billion 

Supply of insurance-linked securities (ILS) grew last year, spurred by heightened demand for reinsurance capital, AM Best says. 

ILS market capacity reached $US100 billion ($153 billion), up $US4 billion ($6.1 billion) from 2022, according to the rating agency. 

“Capital inflows have mostly matched the growth in reinsurance demand rather than exceeded it,” MD Insurance Linked-Securities Emmanuel Modu said. 

“The available supply of capital is often being directed to the more remote layers of risk, making low-attaching, frequency-driven coverage still difficult to obtain.” 

Last year ILS investors experienced the highest returns on record, as premiums rose to levels not seen in many years, the report said. The Swiss Re Global Cat Bond Index posted a return of 19.69% and Eurekahedge ILS Advisers Index 13.89%, beating the previous records of 15.43% and 13.22% set in 2007. 

“In the second half of 2023, capital providers recognised the high premiums and deployed more capital to the cat bond market. 

“Less uncertainty due to favourable loss development on [hurricane] Ian and the lack of a major US hurricane or tropical storm in the third quarter also gave capital providers confidence to allocate more capital to the cat bonds. 

“ILS managers say that the strong returns bolster the pitch that they will make to investors as they attempt to raise capital in 2024.” 

The report says rate increases at the January 1 renewals were far more muted than last year but the trend still suggests that high demand for reinsurance capital seen at the start of last year has not abated. 

The catastrophe bond market shattered issuance records last year, as sponsors sought reinsurance protection from the capital markets. Total issuance volume for 144A property catastrophe bond hit $US14.9 billion ($22.8 billion), exceeding 2022 levels by more than $US5 billion ($7.6 billion) and breaking the previous record in 2021 by more than $US2 billion ($3.06 billion).