Speaking at the Sifma ILS conference, Seo said ILS managers could have raised $20bn more over recent years had it not been for the string of cat loss years since 2017.
But he said that anger among some stakeholders that had put their reputations on the line would lessen this year.
Striking a bullish tone, Seo said that forward-looking conditions in the ILS market were the most attractive in the history of the asset class and that 2022 has been “a giant reset” that could be seen happening even well before Hurricane Ian hit Florida in September.
Schroders’ Stephan Ruoff said that after Ian, it was revealing that many allocators started calling to ask when they could top up. He said he was “relatively optimistic” looking out through 2023.
He added that while cat bond valuation was “a little bit all over the place after Ian, the industry had traded forward”.
In the run-up to 1 January, fundraising was still highly challenging, and Trading Risk data showed that assets under management among the top tier of $2bn+ ILS managers dropped by 4% in the six months to 1 January.
But Ruoff noted that analysis by Aon showed reinsurance risk-bearing capital had gone from $675bn to $560bn, a drop of $115bn in 12 months – “a drop much bigger than the entire ILS market”.
This reflected extensive mark-to-market investment losses.
Traditional reinsurers had pulled back “very severely” in the cat space, Seo noted.
He had taken a call regarding a carrier whose reinsurance program Fermat had previously participated on at a $10mn-$15mn level, asking if the firm could take $300mn of risk on it.
“We thought they were joking. They said, ‘$350mn if you can do it’,” he continued. “Relative to that, the ILS market was rock-steady and stable.”
He said in Ian’s immediate aftermath, the bigger uncertainty was in the macro market, with the broader bond market having the worst performance in its history in 2022.
The panel noted that investors were looking less favourably at collateralised reinsurance, with Seo saying “the plan is to dramatically shift capital to the cat bond side of market”.
Seo suggested that the ILS market has reached peak pricing, but that elevated gains should last for some time.
“We are calling the top here, but we are not going to zoom back to 2015 levels.”
He said if there was a repeat of Hurricane Ian in 2023, investors would still make total returns of 3%-4%.
This compared to the 1.45% average loss that cat bond funds made in 2022, according to the Eurekahedge ILS Advisers index.
Speaking about the upcoming Florida renewal and the situation in Florida, Jennifer Montero from Florida Citizens said that the state market had been “a hot mess”.
“Capacity is an issue and so is pricing,” she said. “Some companies are hanging on a string.”
However, Montero pointed to aspects of market reform that will support private markets in Florida, after the state insurer Citizens experienced rapid growth.
She highlighted a feature which would mean that policyholders receiving renewal offers from private carriers priced within 20% of Citizens’ offer would not be eligible for renewal with the state-backed carrier.
“That will hopefully get more policyholders to leave [Citizens].”
This story has been updated to correct the reference to zooming back to 2015 levels.
