Business insurance

Losses from hurricanes could dampen ILS market: Fitch

As investors in insurance-related stocks take stock of the damage wrought in Florida by Category 4 Hurricane Ian, mounting losses could lead them to look elsewhere for yield, according to a report released Tuesday by Fitch Ratings. Inc.

Such an outflow of capital would put additional pressure on an already tightening supply, according to Fitch.

“ILS investors who are not properly compensated for risk or who face high losses amid the fallout from Hurricane Ian may choose to reinvest their capital elsewhere, which would exacerbate the imbalance between supply and demand. of the reinsurance industry,” the report said.

According to Fitch, nearly 33%, or $10 billion, of outstanding cat bonds are exposed to wind damage in Florida.

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

Reinsurers watching declining capital levels “and increasingly volatile catastrophic losses have effectively used the insurance-linked securities (ILS) market to manage risk and pay for insured losses,” Fitch said, using this capability in their ongoing operations.

Investments, however, are becoming less attractive as investors deal with drifting losses 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 with further inspections of damaged areas and have reached as high as $74 billion.