ILS investors are responding to the recent spate of natural disasters by making their payments to ceding companies, while continuing to raise more money and preparing to make new investments, according to Willis Towers Watson Securities.

None of the third quarter’s major natural catastrophes – two Mexican earthquakes and three Atlantic hurricanes – individually hit the $100 billion loss amount that might trigger a major shift in pricing, affirmed the October 2017 report titled “ILS Market Update – Wake-Up Call.”

However, aggregate losses from the third quarter are likely to reach $100 billion, said the report, noting that this magnitude of claims serves to remind the ILS industry of the potential scale of losses it could face. It also provides an effective test of the ILS market’s capitalization, ability to recapitalize and the resilience of the investor base, the report went on to say.

“Even though this is not ‘that year’, the recent loss activity will provide some clues as to what might happen when it does occur, and we can say that so far ILS investors and traditional reinsurers have performed well, supporting insurers to serve their policyholders,” said Bill Dubinsky, head of ILS at Willis Towers Watson Securities.

“I would point to the Mexican government’s FONDEN bond where the Class A notes may see a total loss of principal, delivering $150 million of disaster relief where it is vitally needed,” he added.

“For better or worse, after a significant loss event many current and potential ILS investors are conditioned to put additional or first-time capital into ILS,” said John Seo, co-founder and managing director at Fermat Capital, who was interviewed for the report.

“As a result, investor interest in ILS is higher now than ever before. No doubt, this is due, in part, to an expectation that some reinsurers and insurers will firm up premiums for some programs in 2018 and that this might have a spill-over effect on the ILS market, and I expect ILS to continue to play a role in moderating post-event rate increases,” he continued.

Source: Willis Towers Watson Securities