RVS Roundtable: Opportunities to innovate, returns are attractive in all ILS segments

Currently, there are attractive returns in all segments of the insurance-linked securities (ILS) universe, and while conditions are expected to remain favourable amid increased demand for protection, there’s still opportunities to innovate and bring more product and capital to market, according to industry executives.

At the 66th Rendez-Vous de Septembre (RVS) in Monaco last week, Artemis held its fifth Monte Carlo Executive Rendezvous Roundtable, sponsored by Vantage Risk and SCOR Investment Partners.

Experts and executives from across the ILS and re/insurance sector discussed a range of hot topics, including current market conditions and sustainability, models, investor sentiment and demand, cyber ILS, the casualty space, and much more.

We will be releasing the full roundtable report with extensive commentary and insights from speakers in the coming weeks, but until then, we wanted to provide our readers with some thoughts shared by our sponsors on the day.

Sidney Rostan, Head of ILS, SCOR Investment Partners, kicked off the roundtable with an overview of current market conditions, highlighting “attractive returns in all market segments.”

“Attractive market conditions should overall persist on the back of a strong increase in demand for protection, as a result of demography, urban growth and inflation, even though inflation is going back to more sustainable levels. The effects of climate change also contribute to this increase of the demand, but to a lesser extent,” said Rostan.

On the catastrophe bond side of the market, Rostan noted the record level of issuance in 2023 and the first half of 2024, as well as the record number of deals and number of cedents involved in the market, all of which is sustaining spread levels.

“Same situation on the ILW side, we have seen a lot of protection purchase interests before the summer. And the forecasts calling for a very active hurricane season put some upward pressure on returns,” he said.

Adding, “In the face of this demand, the supply of capital has grown considerably too. The current supply-demand dynamic in the industry, overall, seems to be well balanced, better than it was in the last two years, leading to orderly reinsurance renewals so far this year. In the ILS space, the recent growth of capital supply is partly due to net inflows in the market but more importantly to the very good returns that market participants have been able to post. These returns, if not distributed back to investors, are of course reinvested which is naturally generating a meaningful additional capacity.

“If no major event hits the industry until the end of the year, some softening may be witnessed in the catastrophe bond space, in particular because there is more liquidity available at the moment than in Q2 when spreads went up. But even if we see some softening, we still will be in an attractive spread environment at the end of the year and into 2025.”

Building on Rostan’s comments, Vantage’s Chris McKeown, Chief Executive, Reinsurance, ILS, and Innovation, underlined the industry’s need to work at assessing the model risk.

“We are using historically based stochastic modelling, and we all can agree that things seem to be different than they were before. We have more convective storms, Verisk estimates $150 billion of annual average loss from $100 billion just a few years ago, with 37 separate $1 billion or greater convective storms this year, 14 last year.

“So, the trends are there to start thinking about are the models’ backwards looking approach doing justice to the conditional probability. So, predictive modelling, I think, is another area alongside demographics, climate change, inflation, concentration of risk and such,” said McKeown.

He agreed that there’s more demand for coverage, and stressed that Vantage is a proponent of bringing more capital to market.

“We think the market needs more capital,” said McKeown. “And why I say that is there is an equilibrium at the moment, but it’s a bit self-manufactured by the market.”

Despite the cat bond space exploding this year, McKeown was eager to call for the market to find more ways to “build product and innovate around other coverages to bring more protection to our counterparties, but also more investor interest, just in the property cat space.”

“We’ve got investor money that is anticipating an orderly renewal and a more or less consistent risk-return going forward, because of the issues that Sidney brought up, and that’s what we’re expecting into the renewal season,” said McKeown.

Stay tuned as we’ll be releasing the full 2024 Artemis Monte Carlo Executive Rendezvous Roundtable in the coming weeks, which will include more commentary from our sponsors and important insights from all of the other participants.