ILS investors are more discerning after loss creep, says Willis Re ILS chief

The 2017/18 losses and subsequent loss creep in the US has prompted insurance-linked securities (ILS) investors to take a fresh look at the space. Although far from abandoning the sector, they are becoming more discerning, Bill Dubinsky, managing director and head of ILS, Willis Re Securities, told Monte Carlo Today.

He said that “a not insubstantial minority” of pension fund and high net worth investors were probably more surprised by the losses and loss creep than “industry insiders” and this has prompted them to take a closer look at their procedures and who they work with in the space.

“It is a question of their being prompted to review things and consider a fresh strategy,” he said.

“Some have switched fund managers while others are re-examining the way the valuations of funds work and corporate governance. They are looking to tighten things up.”

This trend has not changed the sector’s potential for considerable growth, Dubinsky believes. While there could be some “stress points” on deals done for the January 1 renewal, especially if the industry weathers another busy hurricane season, he believes new flows of capital attracted by some extra rate will alleviate that.

“Investors have changed their view of risk, especially on things such as wildfire, but I mostly expect an orderly renewal,” he said.

Against this backdrop, in the medium term, he explained, the market has exciting growth prospects driven by new issuers, new risks and new ILS hubs reshaping the market. He notes that organisations such as the World Bank have made important strides in facilitating deals into the market and envisages more issuers coming to the market as a result.

Aligned with this will be the role of new hubs with ILS legislation. London, Singapore and Guernsey could all find their niche in attracting new issuers to use ILS, although Bermuda will remain the global hub for this form of risk transfer, he believes.

“The key will always be the economics of the deal and whether there is a risk transfer arrangement that needs to take place. More buyers are looking at ILS but they will do it only if it makes a positive and tangible difference to their business,” he added.

He dispelled the idea that every ILS fund will end up partnering with a large reinsurer.

“We believe that multiple business models will transpire in this market—not every model will succeed, but not every model will fail. There will be many combinations in what will be an increasingly complex and nuanced market,” he concluded.