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No forecasts of investor flight from insurance-linked securities

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There has been some speculation among observers within the insurance and reinsurance sectors that the insurance-linked securities market and wider alternative capital markets might suffer a test of confidence in the wake of catastrophe losses and see capital flee, but sources indicate otherwise.

Will investors flee if the catastrophe bond market takes a hit? “I don’t think that’s the case,” said Brad Adderley, a Hamilton, Bermuda-based corporate partner at offshore law firm Appleby.

One of the leading ratings agencies agrees.

“There is a significant supply of alternative capital available, and we foresee no significant reduction, even in the event of a very large natural catastrophe,” Moody’s Investors Services Inc. said when it changed its outlook for the global reinsurance sector to stable from negative on Sept. 6.

In fact, others say it would take a more basic shift in thinking and confidence in modeled losses to shake investor confidence and change market trajectory.

“I think what could curtail growth in the market is questioning the data, questioning the models, if actual losses start increasing significantly and the models don’t seem to be capturing the risk,” said Gary Martucci, director of financial services ratings with S&P Global Ratings Inc.

“To reverse the market would take a fundamental rethink of the models,” said Bill Dubinsky, head of ILS at Willis Towers Watson P.L.C.’s securities division in New York.