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Hurricane losses may dampen ILS market: Fitch



As investors in insurance-related securities take stock of the damage left 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 exodus of capital would further strain an already tight supply, according to Fitch.

“ILS investors who are not properly compensated for risk or face heightened losses as a result of Hurricane Ian may choose to reinvest capital elsewhere, which would exacerbate the supply-demand imbalance in the reinsurance sector,” the report said.

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

Insurance-related securities, including catastrophe bonds, collateral reinsurance, sidecars and industrial loss guarantees, make up about 20%, or $1

00 billion, of global reinsurance capacity, with cat bonds accounting for about 30% of the ILS market, according to the report.

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

However, the investments are becoming less attractive as investors face loss creep and trapped capital due to settlement delays, which can last up to four years, Fitch said.

Insured loss estimates for Hurricane Ian continue to rise along with additional inspections of damaged areas and have reached as high as $74 billion.


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