ILS coveted more by carriers

Insurance-linked securities (ILS) capabilities are increasingly becoming a coveted asset as re/insurers aim to be able to access different forms of capital, Stephan Ruoff, CEO of Tokio Millennium Re (TMR), told Monte Carlo Today.

“The capability to access capital in a way other than through your own balance sheet is definitely a key factor for running an insurance or reinsurance company in the future,” Ruoff said.

The ILS market is turning into an attractive tool to transform short tail risks. A growing array of risks are being transferred into the capital markets, including wildfire and mortgage risks and even workers’ compensation business, Ruoff noted, adding that more corporates are exploring this form of risk transfer.

A number of recent M&A transactions have illustrated that ILS expertise and access to the capital markets is an increasingly coveted asset for insurers.

Through its $5.56 billion acquisition of Validus, AIG also acquired an ILS asset manager in the form of AlphaCat. Following the transaction, AIG CEO Brian Duperreault said at the KBW 2018 Insurance Conference that he sees “huge potential for the whole ILS market within our portfolio”.

Meanwhile, AXA has gained ILS capabilities through its takeover of XL Group, and Markel is acquiring Nephila to become the largest manager of ILS funds globally.

The industry is going through a very interesting process, Ruoff said. “There is a huge blurring between what traditionally was a reinsurance company or an insurance company and what has been an ILS manager,” he said.

“Most of the larger, global groups are trying to acquire capabilities that allow them to cover all aspects of the value chain, including distribution, risk retention, portfolio management and fee generation,” he explained.

“This is an interesting trend to watch,” Ruoff said. “From a macro perspective it is a major driver in M&A activities; this trend is set to continue.”

TMR uses ILS for its own balance sheet management and as a business model that supports ILS markets to access, handle, absorb and manage risk—its Tokio Solution Management unit plays a key role in all this.

“As a reinsurer we also want to be a service provider for our clients,” Ruoff concluded.