December 2016/1

US property cat reinsurance pricing is set to continue sliding in the January 2017 renewals, with additional pressure on the retrocession sector as well, sources told Trading Risk.

ILS prices fell throughout 2016 in response to a decline in issuance volumes, which also drove innovation and an increased appetite for risk.

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Florida Citizens Property Insurance will be looking to replace "a portion" of its expiring $2.16bn of reinsurance in what is shaping up to be a challenging 2017 for the company.

The trend of ILS managers investing in (re)insurance debt could be set to accelerate after two Florida companies raised capital from the sector in recent weeks.

Price tightening ratcheted up for the cat bonds marketed in the fourth quarter, as investor demand remained strong with high volumes of transactions due to mature in the coming year.

Fully funded structures and approval timeframes were two of the sticking points that industry participants said needed further work as part of the draft London ILS regulations.

Returns from investing in so-called "deadcat" bonds - transactions that are nearing maturity and face little or no further catastrophe risk - have softened this year, in a reflection of generally tighter ILS market conditions.

Markdowns to the Gator Re cat bonds in late November caused average cat bond spreads to spike heading into the end of the year, according to data from RMS.

Nephila's Lloyd's business is among the fastest growing in the market after the syndicate nearly doubled its capacity for next year to £228mn ($289mn).

Albourne Partners senior analyst and partner Michael Hamer said developing a reporting template for insurance funds would be a "win-win" for investors and ILS managers.

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The Kumamoto earthquake in April was the most expensive catastrophe for insurers this year with insured losses of $5bn, according to Swiss Re Sigma estimates.

2016 has been a year of diverging strategies for ILS fund managers, with some chasing expansion in specialty reinsurance and others focusing on branching out into new spheres of catastrophe exposure.

RMS said its medium term rate (MTR) hurricane model, which is to be released next year, is likely to show a 5 to 15 percent drop in average anticipated losses in a reflection of the quiet seasons of 2014-2016.

A new regulatory landscape and M&A activity created opportunities for the life sector in 2016, as more companies looked to the ILS sector to transfer risk.

Industry loss warranty (ILW) purchasing by ILS funds has helped to drive incremental volumes in the niche sector in 2016, market participants said.

It has been a sponsors' market in 2016, with undersupply meaning reinsurers have been able to exceed target sizes and secure favourable pricing.

Sensitivity-case hurricane risk modelling has become the ILS market's standard currency, but would shifting to the base-case scenarios provide greater stability for investors and underwriters?