Insurer TV Panel: Non-cat ILS has potential to be several billion dollar opportunity

Increasing investor confidence around insurance risks could drive interest in non-cat ILS and help create a multi-billion dollar opportunity, according to Howden Tiger’s Philipp Kusche.

Kusche, who serves as Howden Tiger’s global head of ILS and capital solutions, was speaking to The Insurer TV as part of a Casino Square panel discussion at the Rendez-Vous.

“As investor interest becomes more familiar with the insurance industry, it is not only focused on property cat, which is the most developed risk category, but also in other lines. There's certainly investor interest across the spectrum,” he said.

“As investors have learned more about the insurance industry over the last five years, there's enough knowledge now to also dive into some of these other classes.”

Kusche said investors considering longer-tail risk will often have different objectives to those looking at property cat. For example, a cat bond investor may be more focused on liquidity and long correlation.

When pressed on the potential for scale of the non-cat ILS market, Kusche added: “Several billion is probably the best estimate. Certainly in order for this market to grow, the longer-tail, non-cat lines have to be in focus, otherwise it's going to be hard for the market to grow substantially in the next few years.”

Stephen Velotti, CEO and chief investment officer at Pillar Capital Management, added that other lines of business present potential issues in terms of valuation.

For example, he outlined that a cyber or casualty event may be ongoing for an extended period of time without detection.

“When people want to leave, how do you strike a value so that they can exit the fund? It's a much more complicated structure than property cat,” Velotti added.

“Who pays for that? Is it the investor that was in the fund five years ago, or an investor in the fund today? With all those other lines of business, the valuation is even more opaque, and you definitely need somebody else to come in and take a look at that.”

Cat bond market sees record issuance in H1

Following a record-breaking first half for cat bond issuance, surpassing the $10bn mark, Kusche noted that this surge had been driven by both the investor and sponsor side.

“Given that we're seeing an ongoing supply and demand imbalance, we are seeing more sponsors explore the cat bond market, and the cat bond product is a true complement to the traditional reinsurance placement. That's something which really fuelled the cat bond market issuance from existing and also new sponsors,” he explained.

With the issue of trapped capital mitigated “to some extent”, owing in part to the more prevalent use of fronting, Kusche remained optimistic that the growth momentum in the cat bond market will continue.

“From our side, the trends we have seen over the last six months of demand-supply imbalance is something which puts cat bonds and other ILS products high up on the agenda of many sponsors,” he said.

“We’re certainly having a lot of ongoing discussions with a lot of our clients to consider at least cat bonds. Not everyone might execute them, but they're certainly becoming part of the regular risk management program many of our clients have in place.”

Watch the 25-minute casino square session with our three ILS experts to hear more on:

  • How 2023 is set to be record cat bond issuance year
  • What Vesttoo has taught the industry about due diligence
  • The increasing appeal of non-cat ILS for investors
  • An update on the private ILS market
  • The impact of macroeconomic factors on the ILS market