ILS Retrocession Capacity Further Squeezed in the Pandemic Era

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Although the losses from previous years’ catastrophe events and the resulting trapped capital have been problematic for the entire insurance-linked securities (ILS) market, the strain is most visible in the retrocession (retro) segment, where capacity has tightened and rates have spiked, according to a new AM Best commentary.

The Best’s Commentary, titled, “The ILS Retro Market, COVID-19 and Pre-Emptive Trapping,” notes that the retro market is estimated at $20 billion, with the ILS market supplying approximately 75-80% of the capacity for this segment. The fallout of recent and heavy insured loss years, and the uncertainty about ultimate losses—particularly for Hurricane Irma (2017), Typhoon Jebi (2018) and the California wildfires—has led to investors holding back capital, creating dislocation in the retro market. This has contributed to rate increases of up to 30% for July renewals, according to AM Best’s discussions with ILS market participants.

A full complimentary copy of this briefing is available via the following link:

Best’s Commentary: COVID-19 & ILS Retro Capacity

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