Record losses in the Insurance-Linked Securities (ILS) market have severely tested the market, AM Best says.

Catastrophe losses rose above $US220 billion ($344.74 billion) from July 2017 through December 2018, a record for an 18-month period, with the ILS market providing $US88 billion ($137.9 billion) to $US93 billion ($145.73 billion) in reinsurance capital.

The ratings agency says investors have been surprised by the magnitude of the losses and the uncertainty around loss figures for some catastrophe events.

There is a need for more standardised investor reporting, with the rights of investors more in focus than before, and the ILS market is devising new solutions to mitigate trapped capital.

“ILS investment managers have focused on a new way to access the reinsurance market through fronting reinsurers that are either owned by the ILS funds or have been set up and/or managed by such funds,” AM Best MD Emmanuel Modu says.