ILS capital returns to previous record level of $97bn: Aon

Helped by a record period of catastrophe bond issuance in the first-half of 2021, alternative capital levels in reinsurance, largely in insurance-linked securities (ILS) formats, have now returned to their previous record year-end level of $97 billion, according to Aon.

As of the half-way point of 2021, Aon’s Reinsurance Solutions counts total global reinsurance capital as having reached a new high of $660 billion.

That’s increased by just over 1.5% since the end of 2020, as additional capital raises, positive performance and retained earnings, as well as ILS market expansion, drove the global reinsurance capital base higher again.

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Timing more important than tenure for ILS investors: Lane at ILS Asia

While it’s not essential to invest in the insurance-linked securities (ILS) asset class for decades to achieve expected returns, it is important that investors time their entry into the space, according to Morton Lane, President, Lane Financial LLC and Director, MSFE Program, The University of Illinois in Urbana-Champaign.

As part of our virtual ILS Asia 2021 conference, held recently in association with our headline sponsor AM RE Syndicates Inc., Lane examined the past two decades of traditional 144A catastrophe bond issuance to determine if investors got what was expected.

His analysis, which can now be viewed in full on-demand, shows that in general, returns and losses were in-line with expectations.

However, this doesn’t necessarily mean you need to be in the asset class for two decades to achieve the expected returns.

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Agricultural Impacts of Flooding in Henan, China

The record rainfall that hit the province of Henan in China the week of July 19 caused extensive flooding that led to mass displacement and casualties. Some reports provided estimated impacts to the agricultural sector.  Here, we put those estimates into context for the agricultural insurance market in China.

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ESG credentials of ILS attracting new investors & issuers: John Seo, Fermat

The environmental, social and governance (ESG) credentials of the insurance-linked securities (ILS) market have become a key driver for issuance activity, according to John Seo of Fermat Capital Management, LLC.

The insurance-linked securities (ILS) asset class has experienced positive momentum and growth over the last year, with catastrophe bonds one area that has experienced particularly positive inflows from investors.

While this can be attributed in part to the reinsurance needs of ceding companies, alongside continued strong appetite for non-correlating investments among capital market investors, John Seo, Co-Founder and Managing Director of ILS and catastrophe bond focused investment manager, Fermat Capital, believes that increasingly, ESG is playing a role in market activity.

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Cat bonds still attractive vs corporate credit despite spread tightening: K2

While catastrophe bond and insurance-linked security (ILS) spreads have tightened during the second-quarter of 2021, hedge fund specialist manager K2 Advisors believes that they remain attractive relative to corporate credit and are a strategy investors should be focusing on.

Given the still uncertain world, as the recovery from the pandemic continues but challenges related to that and central bank policy remain, the hedge fund focused asset manager, which is a unit of investment firm Franklin Templeton, believes investors should be looking to focus their hedge fund investments on alpha generating non-directional strategies.

One of these is insurance-linked securities (ILS), an area that Franklin Templeton and K2 Advisors provide expertise and now also managed fund strategies, having launched its own UCITS catastrophe bond recently.

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Catastrophe bond market can expand further in 2022: Willis Re

The catastrophe bond market has a good opportunity to continue expanding and the current elevated activity could run right into 2022, according to reinsurance broker Willis Re.

In reporting on the mid-year reinsurance renewal season, after which the market is said to be approaching equilibrium, Willis Re explained that catastrophe bond issuance has been particularly strong, something the broker anticipates will continue.

As we detailed in our new cat bond market report, which we published yesterday, activity has been particularly brisk, with around $6 billion of 144A property cat bonds issued in the second-quarter of 2021.

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Today’s ILS Investor: A Catalyst for Change

The $90 billion insurance-linked securities (ILS) sector is undergoing a sea change, led by investors with significant experience in the industry and a heightened awareness of the need to marry their desire for non-correlated risk and attractive returns with the growing demand for responsible investment.

For most of the last 20 years, traditional ILS investors have been hedge funds, pension funds and other institutional investors. They look to the insurance and reinsurance sector for portfolio diversification as an alternative, non-correlating asset class that produces historically strong returns.

The more traditional appetite for ILS had been high-severity, low-frequency events with a short duration. Natural catastrophe perils, which until 2017 made consistently positive returns (for the most part), were a compelling investment target.

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Kazakhstan: Almaty nonchalant over earthquake fears

As Kazakhstan awaits the Big One, its seismologists are underfunded while ever-taller buildings rise in the earthquake-prone commercial capital.

Nur-Sultan may be cold and windy, but at least earthquakes aren’t a concern.

That was Andrei Krasilnikov’s thought when he moved to the capital from Kazakhstan’s mountain-fringed business metropolis, Almaty.

“It was a shame to have to leave our hometown. We have beautiful mountains there, which we don’t have here,” Krasilnikov, an activist opposed to the rapid spread of high-rise construction, told Eurasianet. “But Almaty is in a seismic zone, and I want to live in peace and not have to worry about my family.”

By way of an example, Krasilnikov points to a recently unveiled project to build several dozen 17-story apartment blocks in a tightly packed residential area of Almaty.

“These kinds of ghettos will become a mass grave if there is a powerful earthquake, since rescue equipment will not even be able to drive up through the rubble,” the activist said.

The fears are not without basis. Almaty is in a seismically active region. Mild tremors are fairly common. And seismologists are predicting that a powerful tremor could occur within the coming decade.

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Cat bond activity may give multi-strategy funds room to expand

The acceleration of activity in the global catastrophe bond market over the last few months could now drive an opportunity for a number of multi-strategy investment funds to expand, as the availability of paper has increased even causing some investment managers to lift the shutters on closed funds, we understand.

Which could drive more capital to look at catastrophe bonds and perhaps other insurance-linked securities (ILS), or the more structured collateralised reinsurance opportunities such as sidecars.

Given a lot of the multi-strategy investment funds that look at cat bonds and other ILS are open to retail money as well, these investment managers would really like to see listed opportunities, or assets with greater liquidity, which could even drive interest among specialist ILS managers or reinsurance firms to revisit the listed fund strategy again.

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Cat bond growth propelled by strong investor demand: Moody’s

Moody’s has reported that the catastrophe bond market saw record issuance in 2020 despite a brief pause in Q2 following a particularly tumultuous period for the financial markets.

And looking ahead through 2021, the rating agency expects cat bond issuance to continue to grow with strong investor demand for the asset class, evidenced by a reduction in spreads and upsized deals seen over the last several quarters.

According to Moody’s future growth in the ILS market will likely be driven by pure cat bonds from traditional and non traditional sponsors as well as insurance-linked notes from mortgage insurers.

FULL ORIGINAL PUBLICATION HERE