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ILS should “build more bridges” from capital back to risk: Ruoff, Schroders Capital


The insurance-linked securities (ILS) market needs to work to “build more bridges from capital markets back into the risk bearing markets” to drive continued growth, according to Stephan Ruoff, Global Head of Insurance-Linked Securities (ILS), Schroders Capital.

stephan-ruoff-schroder-secquaeroSpeaking during an event this week, Ruoff explained that while the ILS industry is seeing inflows of capital and rising investor interest right now, the industry needs to create the opportunities to put this capital to work.

Shorter-term, Ruoff explained that it is important for ILS investment managers, like Schroders Capital, to manage the inflows versus their opportunities, ensuring they don’t follow the cyclicality that is embedded in insurance, reinsurance and risk transfer markets.

But longer-term, Ruoff believes the opportunity for the ILS market community is in expanding the remit of the sector.

“The really exciting development in insurance-linked securities is about expanding the risk universe,” Ruoff explained.

Historically, the ILS market came into the insurance and reinsurance industry after hurricane Andrew hit Florida in the 90’s, bringing “capital to an industry which had no capital at that point in time to bear risk,” Ruoff said.

Expanding on the opportunity he added, “When I look back and then project this into the future and look at the world that we see today, with climate change changing the patterns of catastrophes, changing economies that need more protection, also looking at cyber risk that needs protecting against and the global supply-chain that will also need protection.

“I see a risk universe that is always, always growing.”

However, it’s not just about finding new classes of risk, there is work to do in ensuring those risks can be connected with the capital markets and this is where ILS investment managers come in.

Ruoff continued, “With that growth though, we will need to build more bridges from capital markets back into the risk bearing markets and this is where I think the real opportunity lies going forwards.

“This may take a little more time to develop the adequate products, however this is where I think this universe (ILS) will go.”

As well as the expanding risk universe, there are also opportunities in growth economies where insurance is becoming increasingly taken up.

Case in point China, Ruoff believes, where natural catastrophe risks and rapid economic development herald a new peak peril zone.

“Today ILS are predominantly driven by peak risks in the United States, in Japan, to some extent in Europe and a little bit in Australia and New Zealand,” Ruoff said.

“But going forwards, China will become possibly a major area of interest. China is exposed to typhoon risk, China is exposed to flooding and earthquake risk.

“China has become a very large economic factor globally speaking, so the protection needs in China that will emerge, they will ever increase over the next years.

“So risk transfer for China will become a relevant topic, which is a great development as it will diversify other peak risks globally speaking.

“We see China as a potential next peak risk area and that obviously then relates back to other factors such as global supply-chains,” Ruoff closed.

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