Recognition ILS can be cornerstone of reinsurance strategies: ILS NYC 2023

2023 has the potential to be a transformational year for the insurance-linked securities (ILS) marketplace as it’s increasingly recognised as a viable and important component of a reinsurance strategy by buyers of protection, according to industry expert speakers at ILS NYC 2023.

The opening panel of Artemis’ sixth in-person ILS conference in New York City, held February 10th, covered an array of burning industry topics.

The session was moderated by John Seo, Co-Founder, Managing Director, Fermat Capital Management, who asked panellists whether or not they expect the new sponsors that are entering the market when yields are at all-time highs to remain when the traditional market normalises.

“That goes back to the comment I made about this being potentially a transformational year,” said Philipp Kusche, Global Head of ILS & Capital Solutions, Howden Tiger. “I think that there’s more recognition from the sponsor side that ILS can be, indeed, a fundamental pillar of your reinsurance strategy.”

Kusche went on to note that in reality, he’s not seen too many opportunistic sponsors which come to the market and never return. Of course, some will wait until a deal matures before returning, but from Kusche’s experience, the list of people who only tap the catastrophe bond market once is very small.

“And again, just given that also the reinsurance market is recalibrating its appetite, I think there’s recognition that ILS could be indeed a cornerstone of your reinsurance strategy, and which hopefully creates a great platform for this market to continue to grow. But investors, I think, need to also obviously be supportive of these deals in the sizes they are being offered,” said Kusche.

Expanding on this point, Lorenzo Volpi, Deputy CEO, Managing Partner, Leadenhall Capital Partners, argued that the “hard traditional reinsurance market should definitely push all the sponsors to consider the different ways to find protection.”

“So, I think it would be foolish as an insurance buyer and not to think about the cat bond when they’ve already struggled to get terms and conditions they want in the traditional market,” he continued.

Building on Volpi’s comments, panellist Chris McKeown, Chief Executive, Reinsurance, ILS & Innovation, Vantage Risk, said that it’s also interesting to note that while the debate is around catastrophe bonds, for most insurers in the U.S., although property cat is an important piece of their earnings volatility it’s not the scale of the premium that they write.

“And so, I think, interestingly, you might get more interest in sponsorship because there was the first cyber cat bond just issued, or there are other interested parties, interested investors in other lines than property cat. We’re seeing it in the ILS space, but if it percolates up into cat bond investors, I think that might actually engage more sponsors more broadly, for interest in a multi-line approach.

“That’s what they like about traditional reinsurance companies, they are multi-line partners and relationships. So, some aspect of that, I think, might go a long way into showing sort of the spread of interest among cat bond investors,” said McKeown.

His comments led to Seo questioning the panel on catastrophe risk modellers – which he described as relatively neutral market participants which are, in some sense, the beating heart of the market, and which try to assess the risk as best as possible.

Specifically, Seo raised the issues of secondary perils, social inflation, and climate change, stating that the impression he has is that the market is really confused about these issues, and whether the cat modellers have a role to play in resetting the conversations arounds these things.

“I feel strongly about that. I think they are all mixed up,” said Mariagiovanna (Patti) Guatteri, CEO / CIO at Swiss Re Insurance-Linked Investment Advisors Corporation. “Cat modellers, I think, do a very good job of actually representing the risk to the best of the science out there, and to the ability of the modellers. I think this is one of the few asset classes out there that can actually quantify the risk in such a sophisticated way. So, let’s not forget the starting point.”

She reminded the audience that while it’s true that there’s been an increase in losses from catastrophe events in recent years, climate change didn’t start in 2017, it’s been a long process.

“And when we are asked are the models including climate change? Also, what is the question there really? Climate change we’re all agreeing is happening, but it’s really the modelling of climate change is a long-term warming model, and we all agree that’s happening. It’s putting more energy and more moisture in the system. And what can really cat models do about that? Try to model the one year or two years ahead of us.

“So, try to be scientific about it, maybe there are features that can be included, I would say increased rainfall, maybe it’s one. We know there is more moisture in the system so that can be reflected. But can cat models really reflect, do we think, if there is increased frequency of events from climate change or not? So, we have to distinguish, and I think cat modellers have to be maybe more vocal about explaining what can be included, what cannot be included. Every time there is an event, we learn something new. This is Mother Nature,” said Guatteri.

We’ll bring you more articles covering highlights from the event over the coming weeks and in time every ILS NYC 2023 session will be available in video and as a podcast episode as well, so do look out for that. Some initial photos of the day are available here.

Thank you to all of our speakers, sponsors and attendees for their support for Artemis ILS NYC 2023. We hope you enjoyed the day and we look forward to seeing you next year!

View some photos from the day here.

For all enquiries regarding sponsorship opportunities for Artemis events please contact [email protected].

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For all enquiries regarding sponsorship opportunities for Artemis events please contact [email protected].