ILS investor appetite could be challenged at year-end: RenRe CEO

Insurance-linked securities (ILS) investor appetite may still be challenged towards the end of this year, which alongside a lack of confidence that any meaningful reinsurance start-ups could get to market in time for the renewals, leads RenaissanceRe’s CEO Kevin O’Donnell to believe the hard market can persist.

Speaking during his firm’s second-quarter earnings call just now, Kevin O’Donnell highlighted the RenaissanceRe (RenRe) platform as one that may be better positioned to navigate what he sees as a number of challenges for the ILS and traditional reinsurance space.

Answering analysts questions on whether the reinsurance industry should expect new capital flows in advance of the January 2024 renewals to have any softening effect, O’Donnell said he doesn’t currently believe that will be the case.

On the potential for any new reinsurance startups, O’Donnell said, “On company formation, I think it’s pretty late for a company to think that they’re going to be able to come to market and execute in a way that’s going to meaningfully impact the market.”

On insurance-linked securities (ILS) and the potential for significant inflows to move the reinsurance market at year-end, O’Donnell is also not confident that we will see meaningful enough flows to change the rate trajectory in any major way.

“From an ILS perspective, I think there are alternatives. So, what’s going on with some of the more noteworthy allocators into ILS is, their alternative allocation limits are probably still at the high end of where they’d like it. ILS fits into that, so that there’s a reticence to commit more,” he explained.

Adding, on investors, “There are areas in which they have greater familiarity for producing good returns, so the competition against ILS remains robust.”

But, it’s not just large institutional investors and their allocation limits. There are also certain more topical issues that could slow down the pace of ILS market inflows, O’Donnell suggests.

“I think the issues with collateral and fronting, COVID and other things like trapped collateral, are still very much in the minds of where investors are,” O’Donnell said.

He went on to explain that he feels the RenaissanceRe Capital Partners platform provides options for investors and that positions his firm better than some, the CEO believes.

“I don’t believe we will be in an a state where we’re impacted with the limited appetite for ILS, but I think the appetite for ILS will remain challenged going into year-end.”