ILS, traditional reinsurance capital back to pre-pandemic levels
The bulk of the capital was raised in reinsurance markets, but insurance-linked securities could top 2020’s record-setting pace.
Insurance-linked securities (ILS) and the traditional reinsurance displayed resiliency as capital raised in the market hit pre-pandemic levels, $485 billion, to end 2020, according to estimates from AM Best and Guy Carpenter.
The bulk of the capital was raised in reinsurance markets, which reached $397 billion, AM Best reported.
While reinsurance did the heavy lifting, ILS markets saw a record year for catastrophe bond issuance, which was driven by “a glut of maturities and a host of new issues,” AM Best reported. Among these issues is the amount of trapped capital because of actual or potential losses from the string of major natural catastrophe incidents seen in 2020.
During 2020, insurance-backed securities issued saw year-on-year growth of more than 106%, according to Swiss Re.
The Zurich-based reinsurer noted conditions in Q1 2020 were perfect for new issuance, as investors held large sums of capital to deploy into catastrophe bonds. Overall, there were 49 transactions this past year, more than double the number seen in 2019, and nine new cat bond sponsors came online to bring the total to 38.
Despite facing new challenges, AM Best believes the level of scheduled maturities for this year could drive cat bond insurance to match, if not eclipse, the previous year’s results.
Further, the retrocession (or reinsurance of reinsurance), ILS and reinsurance markets were expected to see rate increases during January’s renewal period, but those expectations didn’t materialize as anticipated. This was in part because of additional capacity coming into the market, which mitigated the chance of a hardening market, and “helped the reinsurance market operate in a relatively orderly during the renewals,” according to the credit rating agency, which noted renewals coming up in April and June in regions hit by catastrophe losses will indicate if rate growth will persist.
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