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Willis Reveals Investor Interest in ILS Is Higher Now Than Ever Before

Investing Money Stocks
October 26, 2017

According to the latest Willis Towers Watson quarterly insurance-linked security (ILS) market update, the third quarter of 2017 brought “typically slow” ILS activity with “atypical” natural disaster activity. In response, ILS investors are making payments to ceding companies and continue raising additional money in preparation for new investments. The update observes that “multiple events have effectively spread the loss among public and private primary insurers, reinsurers, and ILS investors rather than concentrating the loss more tightly on only one segment as might sometimes be true with a single event.”

In the aggregate, third-quarter insured losses are projected to reach $100 billion. Yet, the potential to trigger a major pricing shift would require one of the single third-quarter events—Mexican earthquakes Chiapas and Puebla and Hurricanes Harvey, Irma, and Maria—to reach an insured loss amount of $100 billion. The magnitude of loss serves to remind the industry of the potential scale of losses it could face and provides an effective test of its capitalization, ability to recapitalize, and the resilience of the investor base.

Bill Dubinsky, head of ILS at Willis Towers Watson Securities, said, “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. In particular, 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.”

John Seo, cofounder and managing director at Fermat Capital, said, “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. 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.”

Download ILS market update Q3 2017: Wake-up call.

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