Irma an opportunity for ILS to prove its credentials

Losses from Hurricane Irma will not affect investor interest in the insurance-linked securities (ILS) market, according to Tom Johansmeyer, assistant vice president at ISO Verisks’ PCS strategy and development.

He told Monte Carlo Today that he felt investors will not be spooked by payouts from Irma.

“ILS has enough history as a sector that the fund managers have done a solid job of informing and educating their end investors so they do understand that ILS is not a guarantee—you’re taking a risk,” he said.

He stressed that while there is some doubt about how some investors will respond, everything he has been hearing at the Monte Carlo Rendez-Vous showed that investors did understand the nature of the business. As a result, he said, he did not think that capacity would leave the market.

“The market will function as it should,” Johansmeyer said. “If there are payouts from ILS products, as everyone expects there will be, you will see an ILS sector behaving like the insurance sector. As an insurer, the best thing you can do to prove your legitimacy is to pay claims.

“The ILS sector, for the first time in a while, has the opportunity to demonstrate the payment commitment that is fundamental to how insurance works. It’s the best proof of what you do.”

Johansmeyer said investors will stick around and, he thinks, cedants will still want to use ILS.

He added this was an opportunity for the ILS sector to prove to cedants that investors are committed to the space on an ongoing basis, potentially also extending their reach into this area and encouraging yet more ILS capital to enter.

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