ILS capital grew by 6 percent throughout 2018 to reach $93bn of non-life capital by year end, despite a fourth-quarter slow-down, according to Willis Re.
The total included about $9.2bn of new cat bond issuance, according to the reinsurance division’s latest ILS Market Update.
“The trend is more important than the absolute number and it remains up notwithstanding the noise over the past few months,” the firm wrote.
The year had seen a “blurring of lines within the space – the convergence of convergence” as ceding companies looked to the range of cat bonds, sidecars and other collateralised ILS to meet their needs, the report continued.
“ILS capacity and products are growing organically and dynamically as gaps between different products and subsectors fill in”, said head of ILS at Willis Towers Watson Securities Bill Dubinsky.
“Our confidence in the speed that new solutions will emerge gives us a favourable outlook for ILS in 2019.”
This blurring of categories should help the ILS market tackle issues and challenges such as loss reporting, valuation accuracy, collateral release and rollover, the report noted.
Two-way transparency, for both ceding companies and investors, is key to overcoming these challenges.
“Back to basics” will be an important part of overcoming the challenges, said Willis Re.
For example, ILS and reinsurance industry outsiders could potentially solve some of the illiquidity issues that have emerged for ILS investors.
Of $535mn in bonds issued during Q4, $125mn provided protection from California wildfire liability, $200mn was for peak multiperil protection while $210mn went to US earthquake (workers’ compensation), the report noted.