Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Need for efficiency in risk transfer to drive disruption: Potter, GC Securities


With technology advancing at a rapid pace and an increased need for efficiency across the risk transfer industry, fundamental change in the reinsurance sector could facilitate the expansion of the insurance-linked securities (ILS) world, as clients look for the most cost-effective solution, according to Des Potter.

Speaking in November at rating agency A.M. Best’s 2016 Insurance Market Briefing – Europe, Potter, Managing Director, Head of GC Securities (EMEA) at reinsurance broker Guy Carpenter, discussed the continued evolution of the reinsurance industry with a thought to what the changing risk landscape could mean for the ILS space.

The global reinsurance market, explained Potter, is undergoing substantial, fundamental change at a time when the global economy is rapidly evolving, suggesting that looking at past soft market cycles to determine what is a normalised market, should be resisted.

After all, with such transformation happening in the risk transfer world, including the rise of ILS capacity and solutions creating both opportunities and additional pricing pressure in the sector, “what is a normalised return in the current market environment?” questioned Potter.

A number of industry analysts and observers have suggested that the strong capitalisation of the reinsurance market coupled with the reported abundance of capacity sat on the sidelines, will result in a flattening of the market cycle moving forward.

Where any anticipated price surge post-event is likely to be muted as both traditional and alternative reinsurance capital is expected to recapitalise the market with relative ease.

ILS capital within the overall reinsurance market, while slowing, continues to expand its presence, and the desire for efficiency across the board and in an effort to navigate falling returns, ILS has been seen to increasingly look to access risk further down the value chain, essentially disrupting the distribution chain of risk.

The boundaries between insurance and reinsurance continue to blur, explained Potter, and with market experts noting that alternative and traditional reinsurance models are also increasingly difficult to tell apart, providing the most cost-effective solution for clients is likely to become ever-more important.

Questioned on what part of the value chain is likely to get squeezed the most as ILS capital finds its way closer to the original source of risk, Potter said; “The answer to the question really, is, can you deliver an efficient product for your client at a relatively low and capital efficient price? And if you’re going to do that and you’re responsive to your clients needs, people are going to pay for your services.

“I think we are going through an environment where we are going to see a lot of change, we are going to see how technology facilitates change, and how people who have risks they want to transfer can get protection at the most cost-effective way possible, and that doesn’t mean they have to go through the traditional chain of MGAs, insurers, reinsurers, and retro, to achieve that.”

It’s certainly the trend we’re seeing and confirms our writing on the disruptive nature of technology and efficient capital in risk transfer markets, and as technology continues to advance, the insurance and broader risk transfer industry appears poised for innovation and further disruption.

As the risk landscape evolves and technology looks to simplify and increase the efficiency of the value chain, ILS capacity and features, could be presented with a greater opportunity to provide bespoke, cost-effective solutions that are more suited to clients’ needs than traditional insurance or reinsurance protection, for example.

So many insurers and reinsurers now incorporate alternative reinsurance capital within their business models that the lines between traditional and alternative cover continue to grey, and providing the most value to the market could well mean utilising the entire risk transfer tool box, which includes the innovative and willing ILS space.

Join Artemis in New York on February 3rd 2017 for ILS NYC.
Early bird ticket sales will end soon, so register now.
Artemis ILS NYC 2017

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis ILS NYC 2023 - Insurance-linked securities conference in New York City

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.