Increasing availability of data to support ILS expansion: Schuh, Swiss Re

The availability of advanced data analytics is expected to increase and in some instances, this could accelerate the broadening of risks that are placeable in the insurance-linked securities (ILS) market, says Swiss Re’s Global Head of P&C Solutions, Eric Schuh.

Highlighted most recently by its return to the catastrophe bond market via the issuance of a $250 million Northeast U.S. named storm deal, Matterhorn Re Ltd. (Series 2019-1), Swiss Re is an active participant in the ILS space, and has been for some time.

In an interview with Artemis, Swiss Re’s Eric Schuh discussed how the use of advanced technology and data analytics across the risk transfer landscape enhances the potential of the ILS sector, providing an opportunity to expand the remit of the asset class.

“Swiss Re is an active participant in the ILS markets. For many years we have utilised data from natural catastrophe and other lines of business to place that risk into the capital markets on behalf of our clients or as part of our own risk management.

“The market has seen a steady broadening of risks becoming placeable and being placed. The increasing availability of data will continue and in some areas accelerate that trend,” said Schuh.

The ILS market has always been focused on modellable and well understood exposures in the natural catastrophe space, which includes peak exposures such as U.S. wind and European wind, and also earthquake risk in many parts of the world, for example.

Recent innovations in the market include the first stand-alone flood and pure wildfire risk deals, and, while this broadens the reach of the market, it does remain within the natural catastrophe universe.

However, according to Schuh, the increasing availability of data, which is set to continue, could enable the ILS market to play a role in areas outside of the nat cat space.

“For example, we believe that part of the answer for the Cyber market lies in the capital markets, where – similar to large natural catastrophe covers – vast amounts of capital are available to cover peak risks that are heavily accumulating.

“Analytics tools such as Swiss Re’s Cyber Analytics Platform (CAP) make such data more readily available and comparable. This will also benefit capital markets/ILS,” said Schuh.

Regarded as one of the re/insurance industry’s biggest challenges and opportunities, cyber risk has the potential to drive substantial losses and gains for market participants. In light of just how far-reaching and costly the exposures from a cyber event could be, the potential for the ILS sector to participate here has often been discussed and debated.

With cyber risk, one of the issues not just for ILS players but also for insurers and reinsurers, is that a lack of historical and contextual data simply isn’t available, which in turn makes it difficult to model the risk and subsequently price it in an effective manner – essentially hindering market development.

However, as more events take place and more data becomes available, combined with the improving ability to leverage leading data analytics to enhance innovation and product creation, the place for ILS in the cyber market becomes more apparent.

Capital markets investors have shown a willingness to participate in new and exotic parts of the re/insurance arena. It would appear that so long as the risk is well understood, well-modelled and adequately priced, ILS investors are of the maturity and sophistication to operate in both existing and emerging parts of the global risk transfer marketplace, and are willing to step outside of the highly competitive nat cat space.

While advanced technology and data analytics might well enable the ILS space to play a meaningful role in the cyber landscape, it’s important to remember that it has the potential to enable the growing ILS sector to operate in other areas as well, including existing but underserved perils in the nat cat space, but also other, more emerging exposures across the world.