Political violence, terror, cyber private cat bonds “utterly doable” says Johansmeyer

In the first of a series of sponsor showcase video interviews for the upcoming Artemis ILS NYC 2022 conference (held April 22nd in New York City), we welcomed Tom Johansmeyer, Head of PCS, who joined us to talk all things political violence, unrest and cyber risk.

Johansmeyer, who leads the Property Claim Services (PCS) unit of the Verisk group of companies, which is our Headline sponsor for the April 2022 ILS conference in New York, explained that he sees potential for these classes of risk to find their way into the insurance-linked securities (ILS) market in the future.

Overall, Johansmeyer believes that recent trends are driving increasing risks of political violence, unrest and also cyber attacks, making the development of additional risk capital sources and new risk transfer products to address these exposures increasingly important.

Asked whether there is room for ILS fund involvement in political violence and terror related risk markets, Johansmeyer explained that there are a number of factors to consider.

“I don’t think there’s a tonne of correlation appeal to terror, but cyber on the other hand could have some benefit. But that’s correlation within a fund manager’s book, not necessarily correlation relative to the end-investors overall book.

“That’s something to keep in mind, if the ILS fund is the diversifying play, then how much diversification would the end-investor want there, it’s not a straightforward dynamic,” he explained.

Going on to say that, “The issue for political violence, that I keep hearing in the ILS market, comes down to rate. So you need to find a product that generates 8-up-through double-digit online, that at the same time a buyer is willing to pay for and can pay for.

“So with something like PV and we’re seeing this in cyber as well, a lot of folks writing the business get trapped because they’re writing low rate-on-line business and to hedge meaningfully they have to seriously invade the premiums they’ve collected.”

There has been an ongoing discussion around these classes of risk and whether ILS markets could provide some capacity to support their reinsurance, or retrocession, for some years now.

While some progress has been made, it’s been a slow moving area of the market. But with differentiated sources of return becoming increasingly appealing to ILS investors, which will be a topic of discussion at our upcoming New York ILS conference, Johansmeyer thinks we could be on the cusp of some more meaningful activity.

“You and I have been talking about this in cyber, and probably PV, for several years now and the only thing that’s changed is the eminence of the risk. Which is probably the worst thing that could be “the only thing to change.”

“The timing is really interesting though, as we saw a lot of securitised ILW’s recently, taking ILW’s and wrapping them in 144A. Given how much experience the ILS market has with that, it could make a lot of sense to do a private cat bond for terror and PV.

“To see something broader like a Global Terror in a private cat bond I think is utterly realistic and I think makes a lot more sense. It’s the same ILW that’s been traded and we’ve found ways to make the wordings more robust than they’ve ever been,” Johansmeyer explained.

Moving on to say that, “It’s utterly doable, but it’s going to come down to rate and strike.

“The rate has to be high enough to fit with the ILS fund model and a collateralised or illiquid product has certain constraints, but if you can make that product liquid maybe you can work with the rate a little bit and that’s why I like the idea of a private cat bond.”

Hear more from Tom Johansmeyer and meet with our Headline Sponsor PCS at the upcoming Artemis ILS NYC 2022 conference in  New York on April 22nd (get your ticket today).

For details and to register for the conference, visit the event website: www.artemis.bm/ils-nyc-2022/.

The full video interview is embedded below and can also be viewed in full, along with previous Artemis Live video interviews here.

You can also listen in audio to our interviews by subscribing to the Artemis Live podcast here.

View all of our kind sponsors of the ILS NYC 2022 conference below:

For all enquiries regarding sponsorship opportunities please contact [email protected]