Global: ILS fund managers are re-underwriting and de-risking their portfolios
Source: Middle East Insurance Review | Apr 2022
The global insurance-linked securities (ILS) market remains saddled with prior CAT losses, a decline in assets under management (AUM) for some prominent ILS funds, and a drop in the overall performance of ILS funds despite another year of a record cat bond issuance, said a recent report by AM Best.
According to Trading Risk, top-tier ILS managers lost more than $2bn, approximately 6% of their AUM, in the second half of 2021, because of CAT activities and redemptions. In response, ILS fund managers are re-underwriting and de-risking their portfolios, as rate increases are no longer a panacea for improving underwriting results and satisfying skittish investors.
The report noted that issues that were especially relevant for the reinsurance and ILS markets in 2021 include the following:
- CAT losses in 2021 were the highest since the record high in 2017, with notable events including hurricane Ida, winter storm Uri, the Bernd floods in Europe and the December tornado outbreak in the US
- Losses associated with secondary perils continue to receive increased attention from reinsurers and ILS managers due to their magnitude
- COVID-19-related claims reserve trends are levelling off and stabilising
- Increased CAT loss experience is driving the market to improve underwriting, tighten coverage language and seek rate increases
- The retro market remains challenged by capital constraints
- The poor performance of some ILS sectors contrasts with the positive performance of CAT bonds. M