In a recent report, rating agency AM Best points to the potential for expansion of the collateralized reinsurance and private insurance-linked securities (ILS) space, not least as catastrophe bond risk-adjusted spreads tighten this year.
The catastrophe bond market has been the main driver of overall growth of third-party and alternative reinsurance capacity provided by ILS investors in recent years.
AM best estimates that there is around US $60 billion in alternative capital provided via collateralized reinsurance arrangements, reinsurance sidecars, and industry-loss warranty (ILW) transactions at this time.
Outside of cat bonds ILS capacity has not grown meaningfully in recent years. Although it is important to note that far more of it is now usable and able to be deployed to support new risk opportunities, given the amount of trapped capital has reduced substantially compared to a few years ago.
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