The sixth in our series of articles featuring leading figures in insurance-linked securities (ILS) and reinsurance on the market as we move into 2015 features Bill Dubinsky, Head of Insurance-Linked Securities at Willis Capital Markets & Advisory.
We asked for participants thoughts and predictions for the ILS market, catastrophe bonds, collateralized reinsurance and reinsurance or catastrophe risks as an asset class as we move into 2015.
Bill Dubinsky leads the insurance-linked securities (ILS) practice at Willis Capital Markets & Advisory, the capital markets, ILS and M&A focused unit of global insurance and reinsurance brokerage Willis Group.
Bill answered a few specific questions on what 2015 holds for the ILS and reinsurance markets.
His response follows in full below:
Q: Will market growth continue in 2015 notwithstanding tightening spreads?
A: We believe that investor participation in nonlife insurance risk will continue to grow in 2015. This growth will occur not only in cat bonds but also collateralized re and sidecars. However, diversification benefits only helps investors accept declining returns up to a point.
We may start to see the absolute rate of growth decline modestly in 2015 relative to the past few years. Eventually, declining spreads will flatten or even shrink capacity absent other changes but we have not yet come close to this sort of equilibrium.
Q: Will a large event drive away capital markets capacity?
A: We do not know if a large event will occur on January 1st, later in 2015, or in a subsequent year. But we know that it will come. Our view is that after, say, a $100 billion industry loss, capital markets capacity will quickly rebound and “reload” following an event like an Atlantic hurricane, US earthquake or Japanese earthquake that have previously been identified as having this sort of loss potential.
If on the other hand we have a $100 billion insured industry loss from an unexpected source, e.g., a California hurricane or a London earthquake, we may see some pullback and a temporary impact on pricing and capacity from the capital markets.
Given that “slow money” (i.e., pensions, endowments, and life insurers) is the ultimate source of much of the capital markets capacity, we hear investors argue (correctly or incorrectly) that they are more sustainable sources of reinsurance capacity than second tier traditional reinsurers that will have diminished expected returns post event and will, therefore, be more capital constrained than following past large events.
Q: Will 2015 be the year that ILS becomes more common in Asia outside of Japan?
A: The economics for cat bonds have historically not added up in Asia outside of Japan. This is changing as spreads decline, property accumulations grow, modeling tools evolve, and cat bond technology improves. We would not be surprised to see some cat bonds outside of Japan in 2015.
Collateralized re and ILS beyond cat bonds also have promise in Asia to the extent they can be adapted to the local market needs. In addition, the ILS community needs to work hand-in-hand with local regulators to address their questions and concerns. That said, these regulators seem generally quite supportive thus far and are just being prudent.
Our thanks to Bill Dubinsky for his time.
Like to be featured in an interview on Artemis or have some thoughts on the market for 2015? Contact us to discuss.
Artemis’ Q4 2014 Catastrophe Bond & ILS Market Report – A busy finish to a record year for ILS
We’ve now published our Q4 2014 catastrophe bond & ILS market report.
This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the fourth-quarter of 2014, looking at the new risk capital issued and the composition of the cat bond & ILS transactions completed during Q4 2014. It also includes a brief review of the full-year 2014’s record issuance.
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