Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Connecting the capital to the risk is the challenge for ILS: Tony Ursano


The influx of alternative, or third-party capital continuing to enter the global reinsurance space has driven an increase in the research and development of how to more closely connect capital with risks, according to TigerRisk President, Tony Ursano.

Speaking with A.M. BestTV recently, investment banker turned reinsurance brokerage President, Tony Ursano, discussed the impact of capital markets’ attraction to the insurance asset class, estimating that there’s roughly $70+ billion of third-party capital now invested in the insurance business in some capacity.

Much of the noise surrounding the expanding glut of traditional and alternative sources of reinsurance capital stressing the sector has largely focused on its longevity and volume, and while Ursano feels it’s not “farfetched to imagine that $70 billion becomes $200 billion within the next eight to ten years,” relative to the overall global invested assets, it’s frankly “chump change,” he said.

“I think the issue is not whether or not there’s more capital looking to come into the market, it’s how quickly can that capital get access to risk, and get access to risk in an appropriate form or structure,” explained Ursano.

Continuing to note; “Overall there’s a lot of research and development effort and investment being done to try to figure out how to connect the capital with the risk.”

The general view of industry experts and analysts regarding the spate of alternative reinsurance capital in the sector has evolved alongside the capital itself, with the majority of market participants now confident the alternative providers, and their capital will remain post-event.

Ursano echoed this notion; “So I think it’s (alternative reinsurance capital) here to stay, surely we’ll see ebbs and flows based on the volatility in the market place and what happens to interest rates. But overall, I think third-party capital and capital markets interest is going to grow.”

Over time, the wealth of third-party reinsurance capital has gained greater acceptance and willingness of investors as they continue to increase their understanding of the capital and related asset classes, discovering how it can benefit portfolios by adding geographical and product diversification, combined with bolstering any existing capital base and investing in a relatively un-correlated asset class.

That being said, and highlighted by Ursano during the interview with A.M. BestTV, the industry is “probably overcapitalized,” as the new influx of capital, which adds to the broad sources of traditional reinsurance capital providers, struggles to find a home outside of existing product lines, and currently serves more to the ongoing pressures and challenging market environment than is desirable.

Eventually, claims Ursano noting the opinion of a number of industry players, “that capital will find its way directly to the risk. That may be 20 or 30 years off, but I have a strong conviction that’s the way things will evolve over time.”

Adding that technology will drive much of this change and to “some extent there is going to be disintermediation that occurs within the industry around the various parts of the value chain.”

Technology and analytics have and continue to evolve rapidly globally, and across the international insurance, reinsurance and insurance-linked securities (ILS) space this is resulting in improved catastrophe modelling capabilities for existing, developed regions, and more notably a rise in the available data, and therefore improving the ability to adequately price and asses risks, in developing, emerging parts of the world, like Asia and South America.

And the risks in emerging, vulnerable economies around the globe, coupled with the burgeoning threat of larger risks, like cyber and terrorism attacks, is where the glut of capital would be best put to use.

Lowering the insurance protection gap and building the resilience and sustainability of underdeveloped and underinsured corners of the world, through innovative and tailored insurance products, backed with the help and expertise of reinsurers and capital markets participants.

For Ursano, TigerRisk’s commitment to expanding and developing its presence in the capital markets arena was a key reason he joined the firm, as the company remains focused on building its capital markets expertise.

Ursano said; “We’re building our team, we are going to be very involved on the M&A advisory side, we are going to be very involved in capital raising, in general strategic and financial advice, and in insurance-linked securities, both sidecars and cat bonds, funds, and the whole nine yards.

“We are excited about the opportunities that lie ahead for us as we build that business. Our approach is very different, we are looking to be holistic about how we deliver advice, and to have our capital markets business embedded in everything we do at TigerRisk. And to provide a broader set of perspectives than just reinsurance broking, at the end of the day.”

You can watch the full interview with Tony Ursano below:

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