Best’s Market Segment Report: Supply and Demand Dynamics on Full Display in Insurance-Linked Securities Market

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OLDWICK - AUGUST 25, 2022 08:32 AM (EDT)
The recent performance of the insurance-linked securities (ILS) market in the first half of 2022 reflected its relatively low correlation with the broader financial markets, with supply and demand for capital determining which deals were placed successfully and at what price, according to a new AM Best report.

The Best’s Market Segment Report, “Supply and Demand Dynamics on Full Display in the Insurance-Linked Securities Market,” is part of AM Best’s month-long look at the global reinsurance industry ahead of Rendez-Vous de Septembre in Monte Carlo. In this new report on the ILS sector, AM Best states that it expects that the impact of the COVID-19 pandemic on the ILS market to remain limited. However, the pandemic continues to be an issue in Europe, where contract wording was less precise. Consequently, ILS managers are pursuing commutation to free up capital trapped due to COVID-19.

The report covers a wide-ranging number of factors impacting the sector. Main topics also covered in the report include:

• Demand for reinsurance capital (traditional and ILS) is increasing, while the supply of capital remains constrained, driving rates higher.


• Through June 30, 2022, 35 traditional P/C catastrophe bond transactions totaling USD 8.1 billion were placed, down slightly from USD 8.5 billion in 29 transactions in the first half of 2021.


• New sponsors entered the cat bond market, but tranches in several deals were not placed. “Reasons for pulling a cat bond vary and are not necessarily related to market conditions. However, the inability to place some cat bonds seems to connect with the broader theme of market hardening,” said Wai Tang, senior director, insurance-linked securities, AM Best.


• Interest in non-catastrophe ILS risks continues to increase as investors seek returns with a low to moderate correlation to the broader capital markets, without the digital risk profile of property catastrophe risk. “Diverse industry players such as traditional reinsurers, insurtech companies, and longtime ILS investors believe there is an opportunity to transfer casualty risk to the capital markers via ILS transactions,” said Emmanuel Modu, managing director, insurance-linked securities, AM Best.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=323300 .

Additional reports, including AM Best’s annual ranking of the Top 50 global reinsurance groups and in-depth looks at the Lloyd’s, life reinsurance and regional reinsurance markets, will be available during the months of August and September leading up to Rendez-Vous de Septembre. Please visit Best’s Research for additional reports.

Finally, AM Best will host its annual reinsurance market briefing at Rendez-Vous de Septembre on 11 September at 10:15 a.m. (CEST), at the Hermitage Hotel in Monte Carlo. For more information, please visit http://www.ambest.com/conferences/rmbrvs2022/index.html .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.