ILS can diversify into energy, marine, terror and cyber

The insurance-linked securities (ILS) market needs to embrace more forms of risk, according to Tom Johansmeyer, assistant vice president, PCS strategy and development at ISO Claims Analytics.

“When you think about the distinction between ILS and traditional reinsurance, there’s a distinction of capital, but the bigger problem is risk,” Johansmeyer told Monte Carlo Today. “Risk does not know that distinction. So whether you’re with an ILS fund or a traditional reinsurer, what you need is to source your risk into the marketplace.”

Johansmeyer said there was only so much that could be done with US property/catastrophe, and that what the market needs to fuel growth is new forms of risk coming in, such as energy, marine, terror and cyber.

He said that ISO/Verisk was considering a lot of options at the moment and that where the company eventually lands will depend on a number of factors, adding that his team’s biggest priority was to identify which forms of original risk the market needs to address, and considering what kinds of risk could be subsumed by an ILS fund.

“Capital providers of all types need new forms of risk to come into the markets, so that they can deploy more effectively. In terms of what I think could work best, energy and marine need to happen.

“The industry needs a credible window to make that happen and energy and marine is my top priority right now. When I took over PCS in May I made energy and marine my raison d’être, with terror very close behind.”

Johansmeyer said that terror and cyber are now creeping into global P/C programmes and that the market was at a point where people are thinking and talking about their terror/cyber accumulations; this will continue far more after the January 1 renewals, he added.