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Original Risk: A Society for Change Agents

“Constant dialogue” with investors needed to expand ILS: Generali


In order to help the insurance-linked securities (ILS) and catastrophe bond market to expand in scope, into new perils, risks, geographies and products, a “constant dialogue” with investors is required, according to executives at Assicurazioni Generali.

Implying that the relationship between cedents and ILS investors is vital to the future of the market and its ongoing growth and expansion, Mirko Sartori, Head of Insurance Liability Management at Assicurazioni Generali stressed the need for dialogue.

Sartori and colleague Franco Urlini, Group Head of Reinsurance at Assicurazioni Generali, were speaking to Willis Capital Market’s & Advisory in an interview for the investment banking arm of insurance and reinsurance broker Willis Group’s latest ILS market report.

Urlini said that Generali is constantly analysing the development of the ILS market to establish where it may fit within the insurers reinsurance and risk transfer programs.

“The unique features of our portfolio do not always make the ILS market the most attractive and competitive tool available, but we are constantly exploring opportunities,” Urlini said.

Sartori added; “ILS and collateralized reinsurance are definitely part of the protection and risk transfer strategy of Generali Group.

“We always investigate potential opportunities emanating from the traditional and alternative markets with the clear objective to optimize capital allocation and risk protection in the best interest of our shareholders.”

Generali typically looks at two key opportunities within the ILS market for its risk transfer. Firstly catastrophe bonds, typically indemnity trigger based and with a variable reset feature. Alongside that, Generali looks for reliable and flexible ILS counterparties from whom the insurer can source collateralized reinsurance capacity.

Sartori explained what Generali would like to see in the way of developments in the ILS market.

“It would be good to see more different perils being placed, as it is currently happening from time to time, to expand the scope of the space,” he explained.

“To foster that we also need to promote constant dialogue with specialized investors as it currently happens in traditional and collateralized reinsurance,” Sartori continued.

It’s encouraging to see that one of the world’s biggest buyers of reinsurance protection wants to have open dialogue with the ILS market so that it can help to steer the development of new areas of the market, that will in turn benefit its risk transfer needs.

With cedents such as Generali prepared to engage directly with ILS fund managers and investors, it is positive for the ILS markets’ future growth and expansion.

Urlini explained that the ILS market can sometimes seem a little rigid and demanding, which could restrict its growth.

Urlini said; “Our experience within the ILS market has proved to be quite demanding in terms of wordings, documentation and formalities; in general more complex. The lack of a certain degree of flexibility in line with the traditional market attitude could compromise opportunities for investors.”

Finding a middle ground, that allows investors to maintain the rigidity of contract language while also offering the risk transfer products that cedents such as Generali need, could help to propel further ILS market growth.

But dialogue and relationships here will be key, as it is only by engaging with these large ceding companies that the ILS market can begin to understand what it is they want and how best to approach delivering it within the existing, or expanded, ILS product set.

Sartori went on to explain that he feels that the impending regulatory environment under Solvency II will drive further growth of insurance securitization.

“Solvency II provides opportunities for the optimization of protection and capital allocation, also through innovative techniques; perhaps it will take some time but it is certainly going to accelerate the development of the securitization market,” Sartori explained.

Urlini said that supply and demand across reinsurance remains a factor that could be restraining ILS growth, with over-capacity an issue. As a result, he said that it will be “interesting to see the reaction of both the ILS and traditional reinsurance markets when and whether a significant loss will hit the industry in an important way.”

Some investors may suddenly see reinsurance as volatile after a major event, which could discourage some capital inflows, Urlini said. But on the other hand if it affects the returns of ILS products it could attract new capital and investors.

“The development of the ILS market share is very much driven by the level of remuneration that buyers are able to recognize to the providers,” Urlini is quoted as saying.

Urlini concluded; “In a few years the ILS space has the potential to become a more comprehensive tool to protect insurers’ balance sheets, available to primary insurers as well.”

Encouraging words from Italian insurer Assicurazioni Generali S.p.A., which is among the world’s largest primary insurers and has one of the largest reinsurance programs in the world. With these major sponsors becoming increasingly comfortable with ILS and collateralized capacity, it now comes down to the ILS investors to ensure that this constant dialogue is encouraged and the ties created become even stronger.

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