Cat losses dig into ILS returns: A.M. Best
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Performance of insurance-linked securities was taxed by catastrophe losses even as catastrophe bond issuance saw another record year, according to a report from A.M. Best & Co. on Monday.
Catastrophe losses increased 13.2% to $112.3 billion, the highest total since 2017 and above the 10-year average for the second straight year.
Increasing losses caused by so-called “secondary perils” including hail and severe convective storms have caused “substantial losses in recent years” and have weighed on returns for reinsurers and ILS managers despite rising renewal rates.
“Rate increases are no longer a panacea for improving underwriting results and satisfying skittish investors,” Emmanuel Modu, managing director, ILS for A.M. Best, said in a statement issued with the report.
ILS and reinsurance negotiations have thus focused on terms and conditions and restructuring coverage features, such as adding per-event caps in aggregate covers and raising attachments and deductibles, Best said.
Meanwhile, catastrophe bonds performed well last year.
The 144A catastrophe bond market reached a record new issuance of approximately $12.5 billion in 2021, exceeding the previous annual record set in 2020 by almost $2 billion.
“Despite the losses, the ILS market remains attractive to investors due to its low correlation with the broader capital markets, providing a valuable source of diversification,” Wai Tang, senior director, ILS for A.M. Best, said in the statement, adding that investors are “understandably fatigued” by the poor performance of some ILS sectors.
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