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Reinsurers Increasingly Using Insurance-Linked Securities To Transfer Risks

Reinsurers are increasingly relying on third-party capital to support their retrocession needs, in which they transfer risks they have assumed to other counterparties.

According to a report from S&P Global Ratings, reinsurers have ceded about 50% of their exposures at a 1-in-250 return period through collateralized instruments, such as insurance-linked securities (ILS) in 2021. About 15% of total reinsurance capital is sourced through ILS issuances, while the share is “increasing significantly” within the retrocession market, the report says.

S&P said it expects ILS to increase its market share over the next few years as new issuances address new risks such as cyber, climate change, and environmental, social and governance (ESG).


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