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Hurricane losses could dampen ILS market: Fitch


As insurance-linked securities investors take stock of the damage left behind in Florida by Category 4 Hurricane Ian, mounting losses could lead them to look elsewhere for returns, according to a report released Tuesday by Fitch Ratings Inc.

Such an exodus of capital would further strain an already tightening supply, according to Fitch.

“ILS investors not properly compensated for risk or facing elevated losses amid fallout from Hurricane Ian may choose to reinvest capital elsewhere, which would exacerbate the demand/supply imbalance of the reinsurance sector,” the report said.

Nearly 33%, or $10 billion, of outstanding cat bonds, have some exposure to Florida wind damage, according to Fitch.

Insurance-linked securities, including catastrophe bonds, collateral reinsurance, sidecars and industry loss warranties, comprise roughly 20%, or $100 billion, of global reinsurance capacity, with cat bonds accounting for approximately 30% of the ILS market, according to the report.

Reinsurers looking at declining capital levels “and increasingly volatile catastrophic losses have effectively utilized the insurance-linked securities (ILS) market to manage risks and to pay insured losses,” Fitch said, using that capacity as part of their ongoing operations.

The investments, however, become less attractive as investors cope with loss creep and trapped capital due to settlement delays, which can last up to four years, Fitch said.

Estimates of insured losses for Hurricane Ian continue to rise along with further inspections of damaged areas and have reached as high as $74 billion.