The ILS market “has regained its balance” at 7/1: Vickers, Gallagher Re

After experiencing some “trouble” in the early parts of the year, ILS and the alternative capital market largely “recovered” in the July renewal period, says James Vickers, International President, Reinsurance, at Gallagher Re.

Vickers spoke to Artemis alongside the release of Gallagher Re’s 1st Check out the report, which examined key market trends that were evident throughout recent renewal negotiations.

Overall, the report concluded that most buyers were still able to obtain the cover they needed, but with higher levels of attachment and prices well above what most ceding companies wanted. .

Conditions were broadly similar in ILS markets, where increasingly selective investors reduced the capacity available to some buyers, resulting in a continued increase in the cost of alternative risk transfer.

But the report also showed that rising yields have begun to attract new investors to the class, and while this has yet to reverse overall reinsurance price trends, the cat bond market in particular has experienced the highest levels of sponsor growth for some time now.

Speaking to Artemis, Vickers acknowledged that “vanilla single catalytic bonds” remain an attractive class of investment activity, particularly at a time when broader economic pressures make other investment classes more attractive. more risky.

“People are coming back to the market and finding a useful place there, and the spreads haven’t increased dramatically like we’ve seen before. So I think it’s starting to come back a bit,” Vickers said.

“As we enter a period of economic turbulence, cat bonds have the appeal of being completely decoupled from any other form of economic activity. It’s just a purely natural cat. I can see that’s appealing in this rather difficult time.

Vickers acknowledged, however, that it remains difficult to characterize the market in sweeping generalities, given the variety of approaches employed by different investors in a challenging financial landscape.

Nonetheless, looking ahead, the Gallagher Re executive agreed that further growth in demand for ILS instruments appears inevitable if reinsurers in the traditional space continue to take a more cautious stance on volatile business such than disaster risk.

“You can’t make a general statement about this because from fund manager to fund manager there are different strategies and some do better than others. But market conditions are improving for ILS. And because ILS investors can move so quickly, we may see further growth in ILS funds. But at the moment there is not enough new capital coming in to disrupt the broader price environment,” he concluded.

“If traditional markets continue to temper their appetite for catastrophic risk, I think we’ll see more of that. Because at the end of the day, a lot of these businesses need cat capacity. That’s not a voluntary purchase. They need it. You have to buy it.”

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