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Insurance linked securities market looks set for another record year, says Fitch

The insurance linked securities (ILS) sector is seen as strong and viable according to Fitch Ratings, despite alternative reinsurance capital remaining flat.

The ratings agency said that investors remain committed to the ILS market, despite recent losses on individual deals, and the sector is poised to reach another record this year, after last year’s record levels.

Fitch said new sponsors are entering each year with new risk perils. It noted that investors reinvested maturing proceeds and provided additional capital to set a record level of property-related issuance in 2020 in excess of $11bn. And this has continued into 2021, which looks set to achieve a record level again, with over $8bn of issuance in the first half of 2021.

“The pipeline of existing and new sponsors is robust including several novel sponsors looking to expand their property protection against natural catastrophes. In addition, new risk perils linked to mortality or financial guaranty were placed at modest amounts. Notes linked to mortgage insurance continue their rapid expansion with over $4bn of placement in 2020,” said Fitch.

And the agency noted that as reporting standards coalesce, environmental, social and governance-branded catastrophe bonds could be a catalyst for future market growth.

Fitch highlighted that for the third year in a row, alternative reinsurance capital hovered around $95bn, according to Aon. “This figure has grown nearly 250% since YE 2011. At the same time, traditional reinsurance capital had an increase of $68bn at YE 2020 from YE 2018, as a more attractive pricing environment sparked an increase in capacity,” said Fitch.

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