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Reinsurance, ILS markets showing ‘resilience’ despite virus, catastrophe losses

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Reinsurers and issuers of insurance-linked securities (ILS) raised $US485 billion ($637 billion) last year, returning global reinsurance capital back to pre-pandemic levels, a new report from AM Best says.

About $US397 billion ($522 billion) was comprised of traditional reinsurance capital and $US88 billion ($115.6 billion) ILS capital.

AM Best says the numbers reflect the “resilience” of the markets despite uncertainty about claims exposure to the pandemic and losses from multiple natural catastrophes that unfolded last year.

“Motivations for raising capital include a desire to exploit a hardening market (including property cat, specialty, and direct and facultative property lines), shoring up capital bases to meet regulatory and rating agency capital requirements, and weathering the uncertainty of COVID-19 loss estimates,” the ratings agency said.

“There was sufficient ILS and traditional reinsurance capital to satisfy demand during the [January] renewal period.

“The global reinsurance market averted a dislocation due in large part to an influx of new capital, less capital trapping, and the delayed reckoning of COVID-19-related losses.”

AM Best says the December quarter saw some pricing volatility in the ILS market due to elevated secondary perils but that has not stopped issuers from raising a record $US88 billion for all of last year.

The December quarter was “remarkably busy” as investors poured $US3.7 billion ($4.9 billion) into ILS during the period, up from $2.4 billion ($3.2 billion) a year earlier.

Six new sponsors came into the ILS market in the December quarter, bringing the total number of new sponsors for last year to ten. The ten new entrants sponsored 12 transactions totalling nearly US$2.2 billion ($2.9 billion) of new capital.

AM Best says catastrophe bond issuance this year may well reach last year’s levels, citing the continued attractiveness of the liquidity provided by the securities and the diversification benefits due to low correlation to the broader financial markets as supporting factors.