The role of private equity (PE) in the insurance sector is quickly evolving. For example, PE-backed insurers and other investors have turned to alternative-capital solutions such as insurance-linked securities (ILS). Partner Grier Tumas Dienstag and colleagues find that investors injected about $20 billion into ILS In 2021; 2023 could exceed that number. However, these securities have shown mixed results, due in part to an uptick in extreme weather events, with returns ranging from –6 to 11 percent from 2017 to 2023.
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An area chart shows the insurance-linked securities funds returns in relation to natural catastrophes from 2006–23, a nonexhaustive representation, in annual percentage. The chart shows returns of >4% for the first decade, with a dip in 2011 as a result of earthquakes in New Zealand and Japan. After 2016, the chart shows losses in 3 of the next 7 years as the result of hurricanes and wildfires in the US and a typhoon in Japan, with overall returns of <3%.
Footnote: Natural catastrophes with >$15 billion in losses.
Source: Eurekahedge ILS Advisers Index; McKinsey analysis.
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To read the article, see “Insurance investors: Priorities and opportunities,” October 30, 2023.