Michael Stahel, currently Managing Director and Head of Insurance-Linked Investments for Clariden Leu but soon to move to a new home at LGT Capital Management, forecasts a further shift of capacity away from traditional reinsurance markets to financial market placements, such as catastrophe bonds and insurance-linked securities. Overall he says he is bullish on the ILS markets potential for growth in an interview in Aon Benfield Securities recent quarterly ILS market report.
Stahel and his team are between them responsible for four open-ended ILS funds (a number which is set to grow), in four jurisdictions totalling $2 billion in assets under management, as well as mandates and managed accounts which they look after for some large pension funds. As such they are in a good position to make informed projections about where the market is going and their comments are worth taking notice of.
In the interview Stahel says that the insurance-linked securities asset class is seeing continued interest from institutional investors and that more money is being allocated into the space making interest in new transactions strong. He says that his team expect to sponsors to respond to this interest and they hope to see more issuance in the pure cat bond market. Market impacting issues such as Solvency II, catastrophe model changes and an increasing focus on counterparty credit risk will further increase the demand for capacity in peak insurance regions.
With these factors in mind, Stahel says that he is bullish on ILS market growth. He says it will be interesting see how much collateralized reinsurance or industry loss warranty (ILW) business can be moved to the cat bond market, but notes that he and his team are indifferent to the format of the transactions they invest in.