The insurance-linked securities (ILS) market accounts for about 15% of total estimated property-catastrophe reinsurance capacity, and has attracted increased reinsurer and investor participation, according to a new study by Conning.
"The insurance-linked securities market has become increasingly attractive to both investors and reinsurers," said Steve Webersen, managing director at Conning. "Investors are attracted to these non-correlated diversifying investments and the historical returns the asset class has delivered. Reinsurers, meanwhile, have recognized that this market is here to stay, and are extending their business models to establish relationships with ILS funds and develop their own internal capabilities. The market has expanded well beyond its cat bond beginnings, and further growth opportunities will include collateralized reinsurance and sidecar markets."
The Conning study, "Insurance-Linked Securities: As Alternative Risk Transfer Goes Mainstream, the Reinsurer Business Model is Changing" reviews the insurance-linked securities market, its development, and perspective from both investor and insurer standpoints. The study drills into the issuers, investment performance, and the outlook for the various ILS products.
"We can see the impact that insurance-linked securities are having on the overall reinsurer business model," said Stephan Christiansen, director of research at Conning. "Our assessment is that reinsurers are evolving to offer additional solutions to their clients while not losing business to the ILS market. We anticipate that as additional capital flows into the market, reinsurers and capital providers will experience pricing pressure. We also anticipate that insurance-linked securities will capture a growing share of reinsurance capacity."
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