Press Release

Evolution of Insurance-Linked Securities as an established asset class continues its momentum while facing next stage of development

October 22, 2018

LONDON, 22 October 2018 – End investors, Insurance-Linked Securities (ILS) funds, and buyers – the three groups active in ILS – have predominantly weathered 2017 loss activity with a view that reinsurance products backed by ‘alternative’ capital have become mainstream, according to a new Global ILS Market Survey by Willis Towers Watson (NASDAQ: WLTW), the global advisory, broking and solutions company.

The unique survey of all three constituents of the ILS market was conducted more than six months after the major 2017 losses. Responses are therefore informed by the crystallisation of ILS funds’ performance1.

Cedants and funds share the view that ILS will continue to grow, partly through increased usage, and partly by covering risks outside property catastrophe, such as property per-risk, cyber, and marine. Investors and cedants alike continue to show appetite for such transactions.

End investors confirm they see reinsurance as an established asset class. The survey therefore is counter to some observations that rising asset yields would deter new capital inflows to ILS. The survey found:

  • 58% of responding cedants use some ILS capacity, with one in four deriving more than 30% of their capacity from ILS.
  • Over half of non-users would consider adopting ILS capacity over the next three years.
  • Close to half of ILS buyers surveyed have recovered claims under their contracts. Almost all reported the collections as a positive experience.
  • Over half would consider using ILS for non-property cat risks, either as part of a multiline cover or on a standalone basis. 13% have already done so.
  • 2017 catastrophe losses have not deterred end investors. 80% agreed that 2017 ILS funds’ performance was in line with expectations.
  • End investors perceive diversification (96%) and non-correlation with financial asset classes as key drivers. Relative yield ranked only fourth.
  • More than half of end investors have strategic allocations between 2% and 5% of total assets; two-thirds expect to maintain or increase their allocation.
  • Post 2017 losses, almost half of end investors (48%) tactically increased their ILS allocation. Another 16% allocated capital to rebalance ILS to its long-term strategic weight.
  • Only 20% of end investors made reductions; post-loss redemptions were few.
  • ILS funds anticipate further growth over the next five years, with the vast majority expecting this to grow more than 10%.
  • Only a third of ILS funds appoint independent third-party valuation agents for illiquid (Level 3) assets.

James Kent, Global Chief Executive Officer, Willis Re commented: “The industry has widely reported the growth in the ILS market and this comprehensive survey further supports the development of ILS as an asset class despite the challenges of the catastrophe events in 2017. From a Willis Re perspective we see a divergence in the intent of (re)insurers to utilise ILS capacity largely driven by client type.  For growth to continue, ILS investors will need to demonstrate the ability to innovate and provide optimal solutions to meet clients’ evolving needs. Furthermore the trust language, where used, will need to reflect a closer alignment with clients’ expectations. The ILS investors with longstanding and successful track records, supported by consistent and well-regarded management teams, are the ones best equipped for future success.”

Carl Hess, Head of Investment, Risk and Reinsurance at Willis Towers Watson, said: “This collaborative project mirrors our approach to the risk business. We cooperated across the components of Willis Towers Watson’s Investment, Risk and Reinsurance (IRR) segment – comprising Investments, Insurance Consulting & Technology, and Willis Re & Securities – to gain access to all the relevant market participants. That allowed us to execute the most comprehensive survey yet of the ILS market. It’s the same connected, integrated approach we use daily to develop and deliver ILS advice and solutions for our clients.”

About Willis Towers Watson

Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has over 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.

About Willis Re

One of the world's leading reinsurance brokers, Willis Re is known for its world-class analytics capabilities, which it combines with its reinsurance expertise in a seamless, integrated offering that can help clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world's top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker's global team of experts offers services and advice that can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit willisre.com.

About Insurance Consulting and Technology

Willis Towers Watson’s Insurance Consulting and Technology business has over 1,200 colleagues operating in 35 markets worldwide. It is a leading provider of advice, solutions and software – primarily to the insurance industry. Its consulting services help clients manage risk and capital, improve business performance and create competitive advantage – by focusing on financial and regulatory reporting, enterprise risk and capital management, M&A and corporate restructuring, products, pricing, business management and strategy.

About Willis Towers Watson Investments

Willis Towers Watson’s Investments business is focused on creating financial value for institutional investors through its expertise in risk assessment, strategic asset allocation, fiduciary management and investment manager selection. It has over 900 colleagues worldwide, assets under advisory of over $2.3 trillion and over $107 billion of assets under management.

1. The 2018 Global ILS Market Survey was conducted before isolated incidents of collateral being released ahead of loss development was more broadly known