The tenth in our series of articles featuring leading figures from the insurance-linked securities (ILS) and reinsurance arena views on the markets prospects for 2015 features Darren Redhead, CEO of Kinesis Capital Management Limited.
We asked for thoughts and predictions from participants about the ILS market, catastrophe bonds, collateralized reinsurance and reinsurance or catastrophe risks as an asset class as we move into 2015.
Darren Redhead is Chief Executive Officer of Kinesis Capital Management Limited, the third-party capital and reinsurance-linked asset management division of insurer and reinsurer Lancashire Group Holdings.
Darren provided his thoughts on how ILS, cat bonds and collateralized reinsurance underwriting and investing will continue to evolve as 2015 progresses.
Darren’s response follows in full below:
The increased penetration of ILS and 3rd-party capital:
- We expect similar growth and penetration of ILS as seen in 2014, unless a market-changing event happens.
- Overall ILS capital could go from $60bn to $65-70bn over the course of 2015, absent of any market-changing event, but the real question is “is there enough well rated business for $60bn+”?
- Increasing amounts of third-party capital could come from regions which have been more difficult to access in the past, such as Asia.
- Entities backed by reinsurers will also continue to grow modestly and build up favourable track records.
- It will be interesting to see who will own third-party asset managers in the future. In the current top 10, only one is owned by an underwriting entity – will other underwriting companies buy some of them or even potentially brokers?
How the cat bond market may fare in 2015:
- We expect similar total notional issuance as in 2014, as the pricing environment continues to be very favourable for sponsors.
- Some form of growth in private placement catastrophe bonds is likely.
- We’ll see new cat bond sponsors coming in, and potentially new perils-regions being offered on the property catastrophe side.
- The time may even be right for a bond covering new reinsurance classes, like a marine & energy only cat bond.
On new lines of business or continued expansion into new lines you:
- Non-elemental lines will continue to get more traction in ILS and third-party capital.
- The number of mortality/longevity securitizations can be expected to grow.
- Modeling agencies will look into cyber risk in more detail – it wouldn’t be surprising to see an “external vendor model” coming out in the next 3 years.
- More specialised entities will focus on finding solutions to free up trapped capital, and ease the roll over of capital during renewals for collateralized reinsurance vehicles.
Prospects for traditional reinsurers:
- Increasing numbers of larger entities will be seen through M&A, noting $10bn+ companies need less reinsurance so that could be an interesting challenge for smaller ILS entities/reinsurers, and also for brokers.
- More vehicles like ACE’s much-discussed sidecar type venture with Blackrock will be seen, to assume reinsurance themselves and cutting out brokers, so it will be interesting to see how all these parties will react and adapt.
- The way the reinsurance market reacts to losses seems to have changed, are we forever in an over capitalised segment of the financial industry?
Our thanks to Darren Redhead for his insight and time.
Also read a previous interview with Darren Redhead.
Like to be featured in an interview on Artemis or have some thoughts on the market for 2015? Contact us to discuss.
Artemis’ Q4 2014 Catastrophe Bond & ILS Market Report – A busy finish to a record year for ILS
We’ve now published our Q4 2014 catastrophe bond & ILS market report.
This report reviews the catastrophe bond and insurance-linked securities (ILS) market at the end of the fourth-quarter of 2014, looking at the new risk capital issued and the composition of the cat bond & ILS transactions completed during Q4 2014. It also includes a brief review of the full-year 2014’s record issuance.