Overall, the ILS market will continue to grow: Hannover Re

After a banner year for its insurance-linked securities (ILS) business in 2021, large European reinsurer Hannover Re says that market volumes in 2022 appear to be holding steady as the firm forecasts market growth going forwards.

Speaking during a press briefing at this year’s RVS in Monte Carlo, executives from Hannover Re commented on the company’s ILS business, which includes collateralised fronting and catastrophe bonds.

Last year, the reinsurer transferred cat bonds worth more than $2.7 billion to the capital markets, a record volume for the firm. This impressive level of issuance came from 11 transactions, with covers placed against losses from nat cats such as floods, windstorms, earthquakes, and wildfires.

At the same time, the company says that business was also boosted year-on-year in collateralised reinsurance.

Overall, Hannover Re feels that ILS market volume in 2022 appears to be holding steady.

“We see further growing demand on the cat bond side, and the same applies for collateralized fronting,” said Silke Sehm, Member of the Executive Board – Property & Casualty. “There are new markets coming in, other ones going out. But in the sum, we see more or less same capital as the year before.”

During this morning’s Q&A session, executives at the firm were questioned on the potential for ILS market growth in Asia and beyond.

Currently, noted Ludolphs, there’s not much risk coming from Asia to the capital markets, with the exception of Japan. Although, there is a fair amount of capital coming from Asia in the ILS market – so there is money coming from the region from the investment perspective.

“Going forward, I believe that the ILS market will grow overall, including Asia,” said Henning Ludolphs, Managing Director, Retrocession and Capital Markets.

However, it’s likely that this growth will be driven by the collateralised reinsurance market given the dynamics of the Asian marketplace.

Ludolphs explained that cat bonds are mainly leveraged by large companies requiring more capacity. And with many firms in Asia being mid-sized, Ludolphs noted that they are well served by the existing traditional reinsurers – so additional demand is limited.

“This is different to collateralized reinsurance,” said Ludolphs. “As Silke said, yes, I’m sure over time Asia will also develop more and companies will take more advantage of the additional capital coming from the ILS markets.”

Hannover Re also said today that the continued involvement of the capital markets in financing life re/insurance transactions is “a highly gratifying development.”