AM Best Information Services

MARCH 24, 2021 09:05 AM (EDT)

Best’s Market Segment Report: ILS Market Endures Elevated Catastrophe Activity and Global Pandemic in 2020

 Emmanuel Modu
Managing Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5356

Wai Tang
Senior Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5633

Asha Attoh-Okine
Associate Director,
Insurance-Linked Securities
+1 908 439 2200, ext. 5716
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Communications
+1 908 439 2200, ext. 5644


OLDWICK - MARCH 24, 2021 09:05 AM (EDT)
Despite extraordinary losses in 2020, the insurance-linked securities (ILS) and traditional reinsurance markets demonstrated their resilience at the January 2021 renewals, raising capital back to pre-pandemic levels, according to an AM Best report.

The new Best’s Market Segment Report, titled, “Insurance-Linked Securities Market Weathers Elevated Catastrophe Activity and Global Pandemic in 2020,” notes that global reinsurance capital returned to its pre-pandemic level of USD 485 billion at year-end 2020, comprising USD 88 billion of ILS capital and USD 397 billion of traditional reinsurance capital, according to estimates from AM Best and Guy Carpenter. Additionally, the ILS market saw a record year in 2020 for catastrophe bond issuance, driven predominantly by a glut of maturities and a host of new issuers. Given the level of scheduled maturities this year, AM Best believes cat bond issuance in 2021 could reach or eclipse 2020 levels.

An ongoing issue in the ILS market is the amount of trapped capital due to actual and potential losses from natural catastrophe events before 2020 and the COVID-19 pandemic, along with pre-emptive trapping (i.e. trapping capital without submitting specific reserves for damages as the pandemic remains an ongoing event).

Some cedents accommodated ILS funds by rolling over their collateral into new contracts, rather than trapping it in anticipation of further COVID-19-related loss developments, although there is a risk that ceding companies could ask for the rolled-over collateral if losses emerge unfavorably.

According to the report, the rollover accommodation by the cedents amounts to kicking the can down the road for COVID-19-related losses. AM Best believes that the coming months may continue to lead to either court cases or arbitration to settle how much, if any, capital can be trapped, based largely on COVID-19-related IBNR reserves, especially for business interruption or event cancellation business.

The report also states that anticipated rate increases in the retrocession, reinsurance and ILS markets for the January 2021 renewal season did not materialize to expected levels due partially to the additional capacity brought to the markets. This influx of fresh capital mitigated the potential hardening market and helped the reinsurance market operate in a relatively orderly manner during the renewals. Although the rate increases fell short of expectations in certain segments, they reversed the downward pricing trend of the past few years. The upcoming renewals in April and June of this year in regions that were affected more by natural catastrophe losses will shed more light on whether rate increases will continue.

To access the full copy of this market segment report, please visit .

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 London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.