Investors’ appetite for casualty ILS is growing: Forness

Investors have an appetite for casualty insurance-linked securities (ILS) but underwriting discipline remains key, according to the chief executive officer of MultiStrat Re, a specialty casualty and capital advisory firm. 

 Bob Forness, who joined the Bermuda-based firm soon after it was founded, told Monte Carlo Today that investors are more educated about casualty ILS and see that they can get strong returns from the market over the long term. 

MultiStrat is growing, and currently has more than $1.7 billion of capital deployed with the aim of raising “substantially more” for 2025, he said.

The company wants to diversify its underwriting into some selected specialty and property lines.  

He said investors willing to consider casualty ILS are looking for longer-term investments than those investing in property-catastrophe. In this sense, competition for capital is against other alternative long-term investments, often unrelated to insurance. 

He acknowledged that casualty had experienced some challenges in recent years, but said there were still attractive opportunities in many lines.  

“We have to be very careful and selective about our underwriting.”

“Casualty has been adequately priced in many lines and attractive for a period of time,” Forness said. But there are some exceptions. “Some classes of business are struggling, for example, commercial auto and public D&O where capacity has been more difficult to find,” he added.

He said MultiStrat had “moderated its appetite” for commercial auto and workers’ compensation but remained active in many other lines. 

Forness said the potential premium MultiStrat could expect to see was around $15 billion, which enabled it to be very selective. 

“We’re a small participant in a very large market, so we have room to grow. But we have to be very careful and selective about our underwriting. 

“As always, it’s important to be disciplined, and not aggregate years of exposure that might later prove to be underpriced.”

He stressed that while investors seek a total return from both insurance and investment performance, the company is loath to prop one up with the other. “Investments are meant to be a part of the total return—they’re not meant to subsidise underwriting.”

Customised solutions

As to problems of trapped collateral in ILS vehicles, Forness said this was less of a problem for MultiStrat’s investors because they invest for the long term anyway. 

The company has developed ways for investors to exit investments in the later years of a programme. “Because we are a multi-investor programme, if one investor is looking to exit a transaction or a portfolio, we may have other investors who might be interested in taking over those liabilities. 

“We’re able to develop solutions, and they’re customised to individual investors’ risk appetite and duration appetite,” he explained.

Forness said MultiStrat planned to increase the company’s headcount from today’s 22 to between 35 and 50 over the next three years. 

The hiring would be divided between underwriting, capital-raising, which is mainly based in New York, and operations, he said.

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