Ron Diaz, Executive Vice President (EVP) and International Department Head at Everest Re, has said that the reinsurer of the future will need to embrace third-party capital and the insurance-linked securities (ILS) space.
Speaking as part of a panel at the S&P roundtable held at the 2018 meeting of the reinsurance industry in Monte-Carlo in September, Diaz underlined the importance of working with ILS capital in today’s landscape.
“The reinsurer of the future will need to embrace third-party capital and the ILS market,” he said.
Adding: “The idea that you’re competing against them is probably correct, we are competing with them. But, at the same time, they are here to stay, they aren’t going anywhere and last year kind of proved that.”
The ILS market responded well to the events of 2017, and while panelists agreed that it wasn’t quite the test that many had initially expected, it did end much of the discussion around the permanence of ILS and third-party reinsurance capital post-event.
Panelist Cory Anger, Managing Director at GC Securities, a division of reinsurance broker Guy Carpenter, discussed the testing of the ILS space in 2017.
“I think 2017 put 90% of that naysaying down, for the moment. The reality is, 2017 was one of the largest lost years ever, but it wasn’t related to one single shock event, we had a series of significant events.
“But, investors lost money in all segments of ILS. So, we talk about cat bonds, we talk about collateralised reinsurance, and we talk about sidecars. And so, depending on the type of event that’s happened, it’s really been isolated in certain specific structures, and this was the first time that we tested, at the same time, all forms of how they were accumulating the risk. And I do think it eliminates most of these,” said Anger.
Interestingly, she explained that for ILS investors the biggest fear, and what keeps them up at night, isn’t the large events but more the unexpected, black swan event.
“That’s what I think will be the last 10%, to remove the last 10% of naysaying, is to truly prove it when you have a single shock event that’s $100 billion or more. That’s really probably going to be the last test,” she said.
She agreed that going forward, reinsurance companies that want to be successful will need to utilise and embrace the ILS space, underlining potential for beneficial cooperation between traditional players and the ILS space.
Diaz also noted a need to be cooperative in order to survive going forward.
“You have to be somehow cooperative, somehow be able to use the ILS market going forward, and be able to use the cheaper capital where appropriate and the more expensive capital where it can be used. If you don’t embrace that, I think you go for extinction,” said Diaz.