ILS capital could return to growth with second-half inflows: Schultz, Aon Securities

The insurance-linked securities (ILS) market may return to growth in terms of capital through the rest of 2020, thanks to new inflows being seen and expected, according to Paul Schultz, CEO of Aon Securities.

Speaking today during the Aon Reinsurance Solutions virtual media briefing, a replacement for its annual event at the Monte Carlo Reinsurance Rendez-vous, Schultz highlighted the resilience of the ILS market through the pandemic.

He said that, “Fundamentally ILS has demonstrated resilience and posted impressive quarterly issuance.”

In addition and importantly, ILS demonstrated one of the key benefits that investors seek from the asset class during the Covid-19 pandemic.

“ILS once again demonstrated non-correlation, one of the founding strengths of this asset class versus others,” Schultz explained.

Adding that, “It’s really the second time since the global financial crisis that we now have hard data to support that.”

But the ILS market has shrunk in the first-half of 2020, as alternative reinsurance capital investors continued to experience some loss creep, as well as trapping of collateral.

By Aon’s reckoning, during the first-half, “In terms of total assets under management for ILS, we’ve seen a decline, to $91 billion,” Schultz said.

But he’s positive on the ability of the ILS market to recover and in the fact it remains an attractive investment opportunity, expecting a return to growth over the coming months.

“We do expect that to tick up with some fresh capital that has come into the market in Q3 and what we expect to see coming in through Q4,” he commented.

As well as fresh capital, Schultz said that his firm expects catastrophe bond issuance to remain buoyant through the rest of the year.

He highlighted that $9 billion of catastrophe bonds were issued in the 12 months to June 30th 2020, while issuance in the first-half of 2020 has already beaten the full-year 2019 figure.

Looking ahead he said, “We expect the momentum that we’ve seen in the first-half to continue in Q4 and we expect a fairly active period of issuance.”

There’s a chance for further ILS growth through the end of this year, it seems and Schultz further explained that fundamental conditions in the reinsurance market are positive and returns for ILS remain attractive, which combined should stimulate investor appetite.