Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Expansion & diversification most notable ILS developments in 2014: Guy Carpenter


Insurance-linked securities (ILS) have seen rapidly growing capital inflows from a varied investor base, but broker Guy Carpenter (GC) feels it’s the expanding and diversified manner with which ILS is accessing reinsurance risk that has been most notable in 2014.

In GC’s recently published, timed to coincide with the Monte Carlo Rendez-vous market report, ‘Capital Markets: The Reinsurance Evolution Continues,’ the firm notes that seven new sponsors were active in the catastrophe bond market for the first time during Q1 and Q2 of 2014. The new sponsors were, American Strategic Insurance Group, Everest Re, Generali, Great American, Heritage, Sompo Japan Nipponkoa and the Texas Windstorm Insurance Association.

Speaking at the GC Rendez-Vous, Monte Carlo 2014 briefing last week, Vice Chairman and Head of GC Securities David Priebe discussed the influx of capital from new sources; “Guy Carpenter estimates that the global property catastrophe limit exceeds $300 billion, with non-traditional reinsurance in the form of catastrophe bonds, collateralized reinsurance and industry loss warranties increasing from 14% last year to an estimated 16% this year. This is double the 8% of 2008.”

So it’s clear from the report and the briefing by Priebe that even in the current soft market environment, cedents are consistently attracted to the benefits of capital markets capacity and this trend is likely to continue. Priebe reiterates this during his brief, saying; “Strong investor demand meant placements were routinely over-subscribed, often by multiples of the targeted size.”

Within the publication GC also highlights the attraction that competitive pricing and broadening indemnity coverage has for new cedents, noting the rising inclusion of non-modeled or poorly understood perils within this. An issue that most reinsurers will want to see the back of, as the inclusion of non-modeled risks often leaves those associated vulnerable to an accumulation of risks which they simply aren’t aware of, or don’t understand enough about.

Guy Carpenter, like many other reinsurance brokers and ILS funds, has a keen focus on the development and reshaping of the current market as a result of capital inflows, as recently covered by us here at Artemis. And as we reported from Monte Carlo last week, GC feels that there will always be a soft(er) reinsurance market than before as the fundamentals have changed significantly.

In order for the capital markets, and in particular catastrophe bonds, reinsurance and ILS to continue evolution and remain an attractive place for investors to deploy capital, diversified and expanded sponsors and capital deployment opportunities are vital. So too is the need for innovation, adaptation and solid underwriting practices by companies on both sides of the reinsurance market.

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