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Leadenhall: ILS sector not fully tested in 2017

While 2017 was a challenging year for the ILS market, it may not have been the year of "the great test", according to Leadenhall CEO Luca Albertini.

Other major tests for the ILS market would be a $100bn single loss event, or a loss that was very close to a renewal date, he said last week at sister publication Trading Risk's ILS conference in London.

However, Albertini suggested that reloading in the event of a single major loss would be a clearer task than after a year with multiple events like 2017. Backup fund structures could help smooth over a late-occurring loss – which would also challenge traditional markets, he added.

During a Q&A session, Albertini and Aon Securities CEO Paul Schultz also discussed what the impact would be if 2018 proved to be another major loss year.

If another $100bn loss year happened, it would be more a market issue than an ILS issue, Schultz said.

"Ultimately it's a supply and demand market and if the capital available is further depleted, this changes the discussion around the appropriate pricing," he said.

But Schultz said he would expect discussions to focus on the issue of appropriate return levels, rather than the scenario of investors withdrawing capacity outright.

Albertini added: "Larger losses would have to show some level of payback."

In terms of the ILS market's share of last year's losses, retrocession, aggregate industry loss warranties, commercial insurance and reinsurance programmes all contributed to claims, the ILS manager noted.

Following the losses, Albertini said the unattractive rate increases in the retro market meant that Leadenhall had decreased its retro allocation by $80mn.

One problem that arose following last year's catastrophes was the difficulty in providing immediate feedback to investors hungry for information on their losses.

"The speed at which capital market investors want to know what the losses are is not always in line with the speed at which cedants give us information," Albertini noted.

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