The issue of challenges in raising capital for insurance-linked securities (ILS) strategies in the wake of the COVID-19 pandemic was discussed today and global reinsurance firm Munich Re hopes that ILS investor risk appetites aren’t impacted significantly.
Speaking during Munich Re’s ILS Roundtable event, held virtually for this year instead of at the Monte Carlo Rendez-vous as would normally be the case, Thomas Blunck, a Member of the Board of Management at Munich Re, explained how the company relies on continuity of ILS investor appetites when it comes to its retrocession needs.
The COVID-19 pandemic took the entire insurance and reinsurance market by surprise, including the ILS market, Blunck explained.
He went on to explain how Munich Re leverages the ILS market saying, “When we manage our capacity, our solvency ratio, we aim to have a continuous retro program in place.”
He highlighted that this includes the traditional retrocession contracts that Munich Re enters into, some of which likely have collateralized or fronted ILS backing, as well as its collateralized reinsurance sidecar vehicles.
“As you know, our retro program and our sidecar vehicles, we want continuity,” Blunck said during the roundtable event.
“We don’t want capacity jumping out of the market, or the uncertainty this creates in the investor community.
“We hope Covid-19 will not change dramatically the risk appetite of investors.”
Also participating in the Munich Re hosted roundtable discussion, Adolfo Pena, Partner & Co-head of Reinsurance at ILS specialist Nephila Capital, explained how the COVID-19 pandemic impacted the investor-side of the equation for a fund manager.
“There’s no question Covid threw a wrench in capital raising, for reasons of practicality of doing due-diligence,” Pena explained.
But he also added that, “A bigger question that is out there, is whether people are being compensated for taking this risk.”
Pena said that at Nephila Capital the firm has been working hard “to make sure the risk we’re taking is something that’s being priced for.”
Key in this is ensuring that investors are “being fairly compensated” Pena said.
“What we need to make sure of, is if these covers are going to happen are we getting paid?” he explained.
Which runs through the insurance and reinsurance sector Pena said, as each tier of the market needs to ensure it is pricing for the risk it underwrites.