In the latest in our series of interviews with figures from the risk transfer and insurance-linked securities markets, Artemis spoke with Tom Johansmeyer, assistant vice president – Reinsurance Services, ISO on new initiatives at the organisation.
ISO, a division of Verisk Analytics, recently launched a new initiative targeting the reinsurance and ILS space with the provision of data and analytics tools which make operating, capital and capacity management more efficient.
Verisk and business units like Property Claim Services® (PCS®), already play a role in ILS, catastrophe bonds and reinsurance and the organisation has plans to expand its activity in this market and reinsurance generally, an initiative Tom Johansmeyer is leading.
2014 saw PCS continue to play an important role in the catastrophe bond and ILW market as a provider of catastrophe loss data. How was 2014 from your perspective?
Despite challenging market conditions worldwide, 2014 was an interesting year for PCS. New catastrophe bond issuance activity using PCS data — as measured by capital outstanding — was stable year over year at $2.8 billion. As in 2013, we saw growth in the use of PCS data for catastrophe designation in indemnity-triggered transactions, and we believe such use will continue to grow. Mitigation of moral hazard, clarity around event definition, and industrywide consistency are just too important at this point in the ILS market’s development.
It was also interesting to see how use of the PCS Catastrophe Loss Index has evolved. Close to $2 billion of the limit issued with PCS data involved index triggers — and it came from three large transactions. I’m curious to see how that trend continues in 2015. While the use of indemnity triggers has grown, it’s clear that there are still use cases for index transactions and that plenty of potential remains.
And the potential isn’t just at the large end of the spectrum. Half of all publicly announced cat bond lite transactions used the PCS Catastrophe Loss Index, and we see this as an area of strategic opportunity for the ILS market in 2015 and beyond. The ability to quickly transfer targeted risk with minimal frictional costs has been discussed since the earliest days of the catastrophe bond market. Now, it looks like that potential is being realized.
What stood out for me throughout the year was the global industry’s demand for more index and loss aggregation solutions. Joe Louwagie, the head of PCS, is actively working on several initiatives that should help make new markets accessible to the ILS community. Also, with our reinsurance services initiative, I’m working with key market stakeholders to identify the products and services ISO should develop to help them optimize risk and capital management. We’re optimistic that our coordinated efforts to develop index solutions and analytics for the reinsurance and ILS sectors could contribute to market growth.
So, tell me about this new reinsurance initiative…
After several months of preliminary market exploration — and many conversations with our clients — ISO is planning to develop a portfolio of new data and analytical services that reinsurers and ILS market players can use to analyse, transfer, and manage risk. In addition to U.S. property catastrophe, we’re exploring possibilities in specialty lines, workers compensation, and regions.
ISO and Verisk Analytics have a number of groups that serve the reinsurance market and other capabilities that we haven’t applied to the sector yet, such as our set of commercial property products. I’ll be working with those groups to reach more clients and also collaborate on new uses of our existing data sets and capabilities. At the same time, we’ll all work together to identify additional data sets we can use for both industrywide and bespoke solutions.
I have to say, it’s pretty exciting. I’ve spent the past half a year working on this launch, and I’ve already received a tremendous amount of feedback and insight from the ILS market — and I appreciate it. We already have a few projects in the works and a pipeline of others that seems to be growing every day.
So, why now? It’s no secret that rates and expenses are under pressure across the reinsurance and ILS world.
That’s exactly why now is the right time! If the market had more opportunity than capacity, we’d probably look elsewhere. But when we see the reinsurance and ILS space, we see more ways to help our clients. The latest I’ve heard is that there’s around $900 billion in global pension capital looking for a home in ILS risk. There’s no way the global reinsurance industry could absorb that. Also, there are too few diversifying risks as well as structural challenges that can keep those diversifying risks from coming to market. That’s where my head is right now. We’re looking to break down the barriers that keep new forms of risk, innovative structures, and other unique and useful ideas from coming to market.
We’ve written before about PCS’s plans to launch an energy and marine industry loss data service, how is that initiative progressing?
Joe and his team are making solid progress. Next week, they’re planning to present a draft methodology to the two working groups (energy and marine) in both Bermuda and London. This is critical. From the start, PCS sought collaboration with the industry to develop a tool the industry would want to adopt. This is our opportunity to get the feedback we need to ensure the utility of the index.
When you talk to clients in reinsurance and ILS, what is it they want to see from ISO in the future?
We get a lot of requests, thankfully. After all, that’s what’s driving my strategy for the next nine months (at least). I can’t go into too much detail yet, but generally, our clients ask for loss aggregation services for new regions and lines of business. I’ve also had discussions about tools for evaluating portfolios and programs. I plan to continue my deep dive over the next several months, so if any Artemis readers have something in mind, I hope they’ll reach out.
Our thanks go to Tom Johansmeyer for this insight into the plans of ISO and Verisk and where the firm’s focus will be in 2015 and beyond to the benefit of ILS and reinsurance.
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