Swiss Re Insurance-Linked Fund Management

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ILS to become increasingly efficient, larger, more robust, say experts


Over the next five years, the insurance-linked securities (ILS) market is going to be larger as it spreads beyond the property arena, while frictional costs are anticipated to decline against a backdrop of growing investor interest.

Munich Re signThis was the message from ILS and re/insurance industry experts that took part in Munich Re’s 12th ILS Roundtable, which was held virtually owing to the cancellation of the annual Monte Carlo event in September.

Casting an eye to the future, roundtable participants offered their thoughts on what the market might look like in five years.

“I think the market will be larger, there is going to be more money chasing financial assets, and therefore the pool of capital, with better models, will probably be able to better address the needs of the cedants and the reinsurers,” said Ivan Bokhmat, European Financials Equity Analyst, Barclays Capital.

Adolfo Pena, Partner & Co-head of Reinsurance, Nephila, agreed that the market will be larger, and highlighted the fact that, as more peak perils emerge, ILS should be part of the solution.

“Another thing is that it should be more streamlined. The placement should have a lot less starch from the beginning of the transaction to the ultimate risk bear, meaning from the buyer of protection to the person providing the capital to cover that, it’s going to be more streamlined. And, for that to happen, there’s going to be a lot more transparency and a lot more data dependency,” continued Pena.

Expanding on the broad increase in perils, roundtable participant Tom Johansmeyer, Head of PCS, added, “Again, not to the extent where it’s going to seriously erode the share held by the stuff that’s out there now, but you will see cyber ILS with scale, you’ll see Japanese index transactions with scale.”

For Philipp Kusche, Partner and Global Head of ILS & Capital Solutions, TigerRisk Capital Market & Advisory, market growth will be driven in part by the low interest rate environment, as well as the continued appeal on the investor side for ILS owing to its low correlation, even throughout Covid-19.

“Hopefully, we see continued development on the product side, which I think will cover more lines of business but also will bring more risks into the marketplace, and then hopefully bundled with also trading abilities to capture some of the more long-tail lines on specialty,” said Kusche.

Adding, “The last point maybe to make as well, I think we will see more investors participate in the market. I think we’re seeing increased interest from institutional investors to form partnerships and understand the market better.”

Ewoud Bom, Managing Director, Achmea Reinsurance Company NV, also expects market growth and the expansion into new perils, as well as a more efficient ILS market.

“I think in five years, the friction costs will be lower than they are now today. And, maybe the data will be more robust by using blockchain technologies,” said Bom.

To end the global reinsurer’s annual 2020 ILS Roundtable, Thomas Blunck, Member of the Board of Management, Munich Re, explained how he believes the ILS space will continue to learn and then hopefully, develop to get T&Cs right and transparent, and improve the availability of independent modelling.

“And, that is the foundation, of course, for more ILS opportunities. But, I think it’s going to be only a gradual development, maybe one or the other setback is already out there in the next few years, who knows. It can come and go, but the long term-trend is growing,” said Blunck.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

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