He suggested that ILS fund managers and investment bankers are struggling to raise capital. He said there had been lack of commitment for reinsurance sidecars, and not as many cat bonds being announced or quotes outstanding compared to the renewals last year.

“Everyone is failing to raise their capital,” said Adderley. “The fact there is trapped capital, there are issues with Markel CATCo, and there is disconnect. It’s the first time we have seen people struggle to raise capital, which begs the question – are we finally going to start seeing a hardening of the marketplace with all these different issues going on at the same time?”

Ratings agency Fitch stated in its Bermuda 2019 Market Update that rates could potentially increase at midyear 2019 following a capacity pullback by the ILS market.

In terms of issues at Markel CATCo, the company is currently facing pending governmental inquiries from the US and Bermuda into its loss reserves. It is one of a number of funds that has been exposed to so-called loss creep since the catastrophes in late 2017. The issue is important because many investors quickly reloaded and reinvested in the aftermath of those events, partly on the basis of those initial loss estimates.

With regard to trapped capital, Adderley suggested that the catastrophe losses from the last two years have had a “knock on effect”, and businesses losing money can’t roll the money over to the next renewal period.

As much as $20 billion of alternative capital is said to have been trapped and not deployable at the January 1, 2019 renewal, according to JLT Re’s Reinsurance Market Prospective.

JLT Re noted that 2018 did not come close to replicating 2017’s ‘great capital reload’ – although around $8 billion of new capital entered the sector in the fourth quarter of 2017, less than half was raised during the same period of 2018.

The broker suggested that capacity constraints in the retrocession market in fact dominated the narrative around the January 1 renewals. A sizeable portion of retrocession capital – a bulk of which is provided by third-party investors- was trapped for a second consecutive year due to the quantum and timing of 2018 cat losses, JLT Re said.

Adderley added that the uncertainty in the ILS market in 2019 is a culmination of the retro market changing through issues at CATCo, the two years of losses and the fact there is trapped capital.

“We have these three things happening at the same time, which is a bit unusual,” he continued. “What happens now if there are losses this year? We’re starting to see for the first time in a while some disconnect. Even worse, what happens if we see losses in the first half of the year?”

Locations

Bermuda

Services

Corporate

Sectors

Insurance & Reinsurance

Type

Insight

Share
X.com LinkedIn Email Save as PDF
More Publications
Appleby-Website-Privacy-and-Data-Protection
28 Nov 2024

Augmented Advocacy Series (Bermuda): Copyright infringement in the age of AI

Artificial intelligence is revolutionising the way that humans solve problems and create.

Appleby-Website-Employment-and-Immigration
19 Nov 2024

When and how to vary a Bermuda contract of employment

A contract of employment is a legal agreement that sets out the terms and conditions of an employee�...

Technology and Innovation
8 Nov 2024

When non-tech companies buy IT

Generally, there are three categories of information technology buyers: non-technology enterprises, ...

050-Insolvency-Restructuring-Grid-Image
15 Oct 2024

Insolvency: Bermuda

In-Depth: Insolvency (formerly The Insolvency Review) offers an incisive review of the most conseque...

Appleby-Website-Insurance-and-Reinsurance
10 Oct 2024

Recovery planning for commercial insurers

New rules released by the Bermuda Monetary Authority aim to equip certain insurers with a structured...

The Global Website header
7 Oct 2024

The Global – your offshore corporate law questions answered: October 2024

The Global is a quarterly collection of corporate expert insights and analysis across Appleby's glob...

Brad Adderley, Bermuda Managing Partner at Appleby, will speak at the 2022 Society of Actuaries (SOA) Life Meeting on 23-26 August in Chicago.
2 Oct 2024

Bermuda: It’s Impressive How Mainstream Cat Bonds Have Become

Although Brad Adderley, Bermuda Managing partner at Appleby, doesn’t expect 2024 to be another rec...

Appleby-Website-Private-Client-and-Trusts-Practice
26 Sep 2024

Private Wealth and Private Client: Bermuda

In-Depth: Private Wealth and Private Client (formerly The Private Wealth & Private Client Review) pr...

Technology and Innovation
26 Sep 2024

Augmented Advocacy Series (Bermuda): The Practice of Law in the Age of AI

As the world enters the age of artificial intelligence, the legal profession is once again faced wit...