Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Collateralised reinsurance supports ILS growth beyond U.S.: Vickers, Willis Re


A spike in collateralised reinsurance activity and the overall, continued evolution of the insurance-linked securities (ILS) industry is expanding the market’s reach and influence across new peril regions, according to Chairman of Willis Re International, James Vickers.

To date, the large majority of ILS activity has occurred in U.S. property catastrophe lines, where insurance demand combines with advanced modelling capabilities and an abundance of capacity to form a mature marketplace.

Outside of North America and other developed economies and markets, risk transfer is beginning to expand and as insurers and reinsurers adapt to meet the needs of a changing landscape, ILS managers are starting to offer products that enable greater third-party capital involvement.

In an interview with Willis Capital Markets & Advisory (WCMA), James Vickers discussed the influence collateralised reinsurance placements are having on the growth of the ILS space and its expansion outside of the competitive U.S. and North American market.

“Collateralised reinsurance using traditional reinsurance paper as a fronting mechanism has proved to be the key tool to unlocking interest and demand. Outside North America there has not been an historic imbalance between supply and demand and faced with sufficient capacity from traditional reinsurance markets buyers have not felt the same degree of pressure to change.

“Now that ILS Managers have started offering products that buyers can effectively view and administer on the same basis as a traditional reinsurance placement the barriers are being broken down,” said Vickers.

The ILS market remains in its infancy but continues to grow and develop new products that enable capital markets investors to access insurance risks in a more direct, efficient manner. Collateralised reinsurance is a rapidly expanding sub-sector of the ILS space, and its similarities to a traditional reinsurance placement is helping the market play a role in new peril regions, explains Vickers.

Furthermore, some of the “larger ILS Managers are further helping the process through the creation of their own rated reinsurance paper,” explains Vickers.

As the ILS market has continued to evolve new structures, funds/managers along with re/insurers have looked to work with the capital markets in a more meaningful way, and the convergence of alternative and traditional reinsurance capital has intensified.

Utilizing a rated reinsurance model that’s backed by third-party capital, as seen with Humboldt Re and Kelvin Re, and the use of fronting arrangements to get closer to the original source of risk and ultimately allow ILS players to assume risks without a rating, is one of numerous ways the ILS space is adapting to the market as it grows.

Of course, catastrophe bonds that cover risks outside of North America are a common feature of the ILS space, but for those that deem the process to complex or perhaps expensive, collateralized reinsurance and other ILS techniques have proved beneficial, and easier to manage for some, says Vickers.

“The developments in ILS market techniques and structures is rapidly leveling the playing field and is allowing intermediaries to demonstrate to clients that any administrative or structuring issues are of diminishing importance and the other attributes of ILS markets can be openly assessed,” said Vickers.

As insurance and reinsurance continues to expand its reach and protect a greater share of the world’s economies against the perils of natural disasters, ILS will likely play an increasing role also as the influx of third-party investors show little sign of leaving the global catastrophe reinsurance marketplace anytime soon.

New strategies and business models as seen with the rated reinsurance approach, and the efficient and growing collateralized reinsurance market is helping the ILS space reach new heights and access risks in previously inaccessible regions, supporting continued ILS growth in terms of size and sophistication.

As we wrote recently, there is growing interest and demand for insurance-linked securities in the Asia region as well.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.