ILS should be seen as a source of ‘strategic possibility’ not just capital: Aeolus’ Dutt

Aditya Dutt, President of Aeolus Capital Management, has indicated that the re/insurance industry is not making full use of the insurance-linked securities (ILS) investor base by treating the market as just a source of capital, where it should also be viewing it as a source of “strategic possibility”.

Dutt spoke on a recent webinar briefing presented by broker Aon that focused on capital and growth in reinsurance and ILS.

During the webinar, Dutt was asked which opportunities he feels clients are still underusing, or using differently, when it comes to accessing third-party capital.

He indicated that the direct relationships possible between insurance or reinsurance firms and ILS investors are the industry’s most overlooked advantage.

“When we started, there was this distinction that ILS capital is different from traditional capital. I don’t feel that’s necessarily true, and the underutilised portion of this is being able to form a relationship with an investor or a sovereign, and to be able to pick up the phone and have a conversation with this investor about an idea and a very specific idea,” Dutt explained.

“I think it’s such a powerful differentiator in how you interact with your capital sources. People who issue stock, nothing against it, but you don’t know who they are, and you can’t pick up the phone and call your shareholders and say, ‘Hey, what do you think of doing this transaction together?’

“And I think the most underutilised aspect of the ILS industry is this notion that it’s a source of capital, and not a source of strategic possibility.”

Dutt also added that the size of the investor base in ILS means the opportunity goes well beyond simply offering investors new lines of business.

“I think when you go down the list of names of who participates in our space, you’ll add up to trillions and trillions of dollars, and it’s such an incredible resource. I think it’s easy to say, ‘we haven’t put enough casualty in front of them, or enough cyber in front of them’, but actually, I’m not sure we’ve scratched the surface of what these people are capable of,” Dutt said.

“I think it’s easy to put on tunnel vision and say, you know, I have my balance sheet, and that’s all I do. But opening the door to strategic possibility really expands the opportunity set of what we can do.”

During the webinar, Dutt also called the role of third-party capital “critical,” saying: “It’s growing, and its capabilities are expanding. Started with cat, but obviously we’re seeing third-party capital starting to take risk in many different places. So I have a very, very optimistic outlook on the role of our partners over the long term.”

Also read: Investors should consider ILS for diversification and strong risk-return profile: PGGM’s Takken-Somers