When it comes to the non-catastrophe side of the insurance-linked securities (ILS) market, there is an opportunity to address funding gaps that exist in the industry and have held back growth, while at the same time delivering new and relatively uncorrelated asset classes, Vesttoo’s CEO Yaniv Bertele explained at an event last week.
Speaking in New York last Friday at Vesttoo’s first investor education focused conference, Yaniv Bertele highlighted that fact natural catastrophe risk exposure remains at least 85% of the ILS market today, but sees a significant opportunity for non-catastrophe risk exposed lines of business to grow their share, to the benefit of investors.
During a keynote speech to kick off the event, Bertele said, “The main difference between the catastrophe risks and the non-catastrophe risks, is the low-severity, high-frequency behaviour.
“These are liabilities that effectively have a lot of data, have a lot of historical performance, and based on unique underwriting capabilities, these specific liabilities and their development over time can actually be fairly predictable.”
He said that non-cat ILS is entering a growth stage, which “Possesses a very, very unique opportunity to invest in low-correlating, high-frequency low-severity type of instruments that will diversify the portfolio, but act very similarly to a fixed income asset.”
Adding that, “It is an opportunity to open up new asset classes, different derivatives that would speak differently for different investor groups.”
Bertele highlighted a “funding gap”, within certain classes of insurance and reinsurance business, where most of the risks are retained and new capital infusion could benefit market participants and be looked on favourably by regulators.
This funding gap “creates a very unique opportunity,” Bertele believes, saying that transferring them to the capital markets can help re/insurers to get more risk off their balance-sheets, while leveraging lower costs of capital.
“Our belief is that this funding gap is the best opportunity for the capital markets to step in, and hedge more and more of those liabilities,” he explained.
Bertele continued to say, “Moving from catastrophe risk, over to the non-catastrophe, P&C and life segments, allows us to benefit from everything that the ILS industry has created, along with the fact that now any investment opportunity has low-severity, high-frequency behaviour.
“It is predictable to a standard deviation, it is diversifying, and providing a very unique opportunity to diversify the portfolio away from the systemic risks of the market.”
He highlighted “huge potential” for tapping the capital markets to support this funding of non-cat risks.
The path Vesttoo has been following, in leveraging advanced technology to help make these risks more understandable and standardised, while increasing transparency around their risk and return potential, is just the start, Bertele said.
Highlighting that the company intends to launch a range of new products to deliver optionality to those looking to transfer non-cat risks, and a range of access points for investors looking to allocate to them.
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