SCOR: sidecars and cat bonds will always attract reinsurers

Catastrophe bonds and sidecars will always have a role to play for reinsurers, says Augustin Gas, retrocession manager at SCOR.

Speaking to Intelligent Insurer, Gas said that as issuance soars and first time participants continue to explore the market, these strategic tools will remain an intriguing and beneficial option for reinsurers.

“Sidecars and catastrophe bonds will always be interesting for reinsurers because they bring diversification in terms of capacity. As the capacity doesn’t come from the reinsurance world, but from the capital markets, it’s very healthy diversification,” he said.

Gas spoke of the growth of cat bonds in recent years, describing it as “substantive progression”. He added that he expected cat bonds to grow further as European and Asian cedants begin to use them.

However, he said that the liquid form of a catastrophe bond which allows it to be traded makes it a less complex structure, compared with its counterpart, the sidecar.

“Sidecars optimise the reinsurance capital, and we’re seeing a lot more of the pension fund types of investors looking to these structures in the current market. However, they can be complex,” he said.

Gas added that the third party capital managed sidecar, which is a more opportunistic play targeting a specific product or region, or line of business, is good at responding to market dislocation.

Looking ahead, it has been suggested by some in the industry that smaller players may exit the ILS space in time, leaving only larger players to operate, however, Gas does not necessarily believe this to be true.

“We use all the funds, regardless of size,” he said. “We don’t favour large funds over smaller funds. The more funds and more diversification, the better it is for us. Obviously we know that the largest funds which have built a good track record have an advantage compared to the smaller ones as they are more visible by investors and can manage larger investments, but for us, they are not the only option.”

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