The influence of the insurance-linked securities (ILS) market and capital market reinsurance capacity on risk transfer market development is set to increase, according to speakers and attendees at Artemis’ first conference in New York recently.
When we decided to hold an insurance-linked securities (ILS) market event in New York City, with a focus on specific opportunities that could drive the future of this marketplace, we had no idea what the response would be like.
Artemis ILS NYC 2017 was held in midtown Manhattan on Friday February 3rd and thanks to a great response from our readership attracted an audience of more than 215 attendees, while the waiting list for spaces neared 90 by the day of the event itself.
The idea behind the event was not to dwell on the state of the ILS and reinsurance market, but rather to reflect on some lessons learned, focus on some clear opportunities for the future, identify trends likely to drive growth and overall to focus on Future Thinking.
Session leaders and participating speakers lived up to this mantra admirably.
The event saw candid discussions among market leaders on the functioning of the ILS market, how the capital markets can support global resilience initiatives, what the convergence of insurance technology (InsurTech) and ILS could mean, and where future opportunities lie as ILS fund managers and investors broaden their remit.
The underlying sentiment from ILS market participants was that there is more to do, for ILS and the capital market investors it services to realise their potential in insurance and reinsurance markets, and that ILS can do much more as it continues to develop and grow its influence across risk transfer as a practice.
The ILS market has developed conventions that position it in an enviable space as a source of efficient risk transfer, with the potential to marshal significant sums of capital to soak up the world’s risks, supporting the roll-out of more and better insurance coverage, to meet social, societal as well as commercial needs.
Leading ILS market participants candidly discussed how their fund’s and business models have adapted during the ILS market’s relatively short history, explaining that ILS has impressively responded to issues as they arose and now stands ready to move forwards with the capital market ready to secure an increasingly large stake in insurance and reinsurance business flows.
Future growth could be significant as well, as our session leader John Seo, Co-Founder and Managing Principal at Fermat Capital Management, LLC suggested; “For every dollar of money that you see in the market right now, I think there is roughly 10 dollars on the sidelines waiting to come in if the market hardens.”
Seo also highlighted some of the tests that the ILS market has faced over the years, and the panelists discussed the way the market responded, what was learned in the process and suggested how ILS capacity will respond to future events and market forces.
Leaders in the efforts to increase global resilience with the help of risk transfer and insurance highlighted the need for capacity to support these goals, explaining that the capital markets will play a vital role and that ILS structures can offer the efficiency of risk transfer required to support a global roll-out of risk protection.
Rowan Douglas, CEO of the Capital, Science & Policy Practice at Willis Towers Watson explained that the ILS market needs to educate in order to capitalise on this opportunity, saying; “Most governments do not, in the developing and emerging countries, do not feel comfortable, or confident, or even understanding of our marketplace.”
Douglas also noted that the ILS market has been “combat tested”, proving its ability to pay losses and stressed the need for engagement with public policy makers in order to bring the clearly abundant capital to bring resilience and security to communities around the world.
A thoughtful discussion on InsurTech, the emerging use of advanced technologies to speed up the risk to capital re/insurance value-chain, highlighted the fact that ILS capacity from the capital markets is likely to benefit from greater and more direct access to risk through platforms and partnerships as this trend accelerates in years to come.
Michael Ian Coles, Chairman & Chief Executive Officer of Cedent, led the panelists in an informed discussion of the role of technology in insurance and reinsurance, as well as the opportunity for ILS capacity from capital market investors to benefit from the Insurtech trend.
Hemant Shah, Co-Founder & CEO of risk modelling firm RMS, explained; “We are trying to significantly improve the efficiency of how the value chain operates.”
Samir Shah, CEO of Ledger Investing, said that he believes that technology presents; “An opportunity to rethink about how an insurance company creates value,” adding that “InsurTech has a huge opportunity to actually transform the industry, and it’s very much coupled with ILS.”
Our final session discussed the niche, diversifying segments within the broader ILS market, identifying potential growth areas for the future and highlighting that the ILS market is already far more diverse, in terms of risks, than many give it credit for.
Mike Millette, Founder & Managing Partner of Hudson Structured Capital Management, led the session and highlighted that the ILS market remains a niche within the broader risk transfer landscape, but explained that it is steadily expanding its reach and absorbing new classes of risk.
Panelists discussed the steady evolution of ILS investor appetites, which now find different investors with different tolerances for a variety of classes of insurance and reinsurance business.
Luca Albertini, CEO of Leadenhall Capital Partners LLP, explained that expansion does take time, with some of the more recent diversifying ILS transactions, such as the Operational Re bond, taking as long as “Two years from the first pitch to completion,” as ILS managers and investors get comfortable with new types of business.
The overwhelming message from the conference was that ILS has more to do to ensure it can meet its potential, but that ILS can already do so much more in risk markets globally, with the potential for the market to provide a significant proportion of global insurance and reinsurance risk transfer capacity in the future.
ILS business models are adapting all the time, absorbing innovative ideas to source, structure, price and warehouse risk, all the while extracting the relatively uncorrelated returns for the sector investor base.
It is this continued adaptation and evolution, as well as the embrace of innovation, that will help to secure ILS and the capital markets future, ultimately growing its influence on and penetration into the global re/insurance market.
Future Thinking is key and the ILS market is definitely ready for the next phase of its evolution and growth. We look forward to exploring more of these trends in New York next year and hope you’ll join us.
We’d like to thank all our attendees for joining us on the day, hope you enjoyed the event and would love to see you back in New York next year for ILS NYC 2018, which will be held around the same time of year (date to be announced very soon).
To all our speakers, thank you for agreeing to participate, for providing candid, insightful and thought-provoking discussions and for supporting the event.
Finally, we’d like to thank all of our kind sponsors of the ILS NYC 2017 event, without whom the day would not have been possible.
Lunch & Networking Break Sponsors: