Delta in ILS and traditional property cat pricing “a clear signal”

The delta between pricing in insurance-linked securities (ILS) and traditional property catastrophe reinsurance is providing “a clear signal” to the market and provides further competition for peak risks, Aon’s Reinsurance Solutions has said.

In the brokers’ latest market report, presented just before the annual Monte Carlo Rendez-Vous event and looking forward to end of year reinsurance renewals, also notes that, with the ILS market growing, especially in catastrophe bonds, the multi-year nature of these transactions means that business is lost to the traditional market, at least for a time.

In contrast to this time last year, Aon’s Reinsurance Solutions notes that it is seeing new capacity entering the property catastrophe market.

However, this is predominantly in the form of insurance-linked securities and third-party capital aligned with traditional reinsurers, the broker explained.

Overall, Aon believes that the supply of reinsurance capital will be “broadly adequate to serve insurer demand.”

But, the delta, or difference in pricing, between cat bonds and ILS versus traditional reinsurance, could lead to additional competition, it seems from Aon’s comments.

Another factor that could drive competition, or make ILS more competitive perhaps (depending on how you look at it), is that Aon is expecting multi-year capacity to be more readily available in 2024, than at the January 2023 renewal.

This will provide, “an opportunity for insurers that have historically purchased on a multi-year basis to increase their share in 2024.”

As insurers look to lock in multi-year capacity, the catastrophe bond market is currently an opportune place to look and this should help to drive continued interest from new sponsors.

Aon’s Reinsurance Solutions explains, “The rebound in the ILS market in 2023 is a key supply-side driver in the property catastrophe space. The delta in ILS and traditional property cat reinsurance pricing sends a clear signal to the market, and provides further competition for peak risks.

“Also, the number of insurers that have accessed the ILS market in 2023 to date already surpasses the whole of 2022.

“Given the multi-year nature of catastrophe bonds, business written by the ILS market in 2024 will be lost to traditional reinsurers for future renewals.”

Also read: We’ll be pushing for reductions in rates where we see competition: Aon’s Marcell.