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Willis Re: ILS Capital Reached $93 Billion in 2018

Recent deals include California wildfire liability cover.
  • David Pilla
  • March 2019
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We are seeing the convergence of convergence.

William Dubinsky
Willis Towers Watson Securities

Nonlife insurance-linked securities capital continued to grow in 2018, as the total stood at $93 billion at year-end, up from $88 billion a year earlier, according to Willis Re. Recent deals covered California wildfire liability and U.S. earthquake.

“Lines of demarcation within the ILS space are blurring as ceding companies and intermediaries look to the range of cat bonds, sidecars and other collateralized ILS to identify the best tools to meet specific challenges, continue to develop new solutions, and refine existing structures,” said the reinsurance intermediary unit of Willis Towers Watson in a statement. “This blurring of categories should help the ILS market to overcome concerns including prompt loss reporting, valuation accuracy, collateral release and rollover, and increasing volatility.”

“We are seeing the convergence of convergence,” said William Dubinsky, managing director and head of ILS at Willis Towers Watson Securities, in a statement. “The overall ILS figure is today a much more meaningful measurement of market size than focusing on cat bond and sidecar issuance alone. ILS capacity and products are growing organically and dynamically as gaps between different products and subsectors fill in, and innovation and market necessity create new capacity and products. Our confidence in the speed that new solutions will emerge gives us a favorable outlook for ILS in 2019.”

Alternative capital is showing up in many places other than catastrophe bonds, said Willis Re in its January “ILS Market Update.” As an example, the runoff business “is essentially a form of alternative capital, as are some of the bank facilities providing alternative capital in the life and annuity space,” the report said.

“Sometimes the boundaries between traditional insurance and reinsurance equity capital and alternative capital blur too, as insurers and reinsurers strive to become more efficient in the solutions they can deliver.”

Willis Re said as innovation and market necessity create new capacity and products, gaps are filled between different products and subsectors, redefining markets. “This feature of the market, very much in evidence in 2018, bodes well for a continued healthy ILS market in 2019 and beyond,” the report said.

ILS and reinsurance industry outsiders “can potentially solve some of the illiquidity issues that have emerged for ILS investors,” the report said. “Whether from the convergence of convergence or otherwise, confidence in the speed with which new solutions will emerge gives us a favorable outlook for the ILS market in 2019.”

 

David Pilla is news editor, BestWeek. He can be reached at david.pilla@ambest.com.


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