The insurance-linked securities (ILS) market has returned in recent years, with meaningful investor interest being seen again. But the ILS market has resurged in a much healthier way and the expectation is it will remain more balanced with the rest of reinsurance, according to Jim Williamson, President and CEO, Everest Group.
As a reminder, Everest leverages ILS capital for its own risk transfer and protection purposes, with a very recent example being its securing of $1 billion of collateralized retrocessional reinsurance limit from the capital markets through two new Kilimanjaro Re catastrophe bond series.
In addition, Everest has an aligned third-party capital management business, Mt. Logan Capital Management and cedes a meaningful and growing amount of risk from its property catastrophe line of business to cells of its Mt. Logan Re Ltd. third-party capitalised sidecar-like structure.
Williamson commented on the current state of the insurance-linked securities (ILS) market saying, “It’s an important trend in the industry. If you rewind the clock, a few years ago, I think we were awash in ILS capital. Then, as interest rates corrected to the upside and losses flowed through that market, you saw a real retraction.”
Adding that now, “I think the market’s returned, but in a much healthier way. For the most part, the participants in the market today understand very clearly the risks we’re taking, which I don’t think was always the case five to 10 years ago.”
Discussing investor interest in ILS opportunities, Williamson continued, “We’re certainly seeing a lot of investor interest in participating in cat bonds. And so if you’re, you know, the Florida fund, or a big reinsurer like Everest, you’re getting very favourable pricing on relatively remote cat bonds, which can be an important tool for us to manage tail exposure.
“Then on the sidecar front, at Everest we have a sidecar Mt. Logan, and we’ve been very successful raising high quality AUM from investors that understand what it means to partner alongside us on taking some of these risks.
“We have almost $2 billion in AUM now.”
Williamson continued to say, “I think that’s a really healthy market, we’ve got a strong pipeline of investors lining up.”
Looking to the future, the Everest CEO believes that ILS capital will remain more in balance with the rest of reinsurance.
“My expectation is we’re going to live in a world where ILS capital is in a good area of balance. It’s not an excess, prices are reasonable. And I do think hopefully, if there is loss activity, people won’t be as surprised as they might have been 10 years ago when there were losses,” he explained.
Williamson’s comments speak to the complementary nature of ILS capital, which is increasingly used both for protection and partnership purposes within the insurance and reinsurance industry.
With growing assets under management in the Mt. Logan business, as well as its own growing use of catastrophe bonds this year, Everest is utilising the appetite third-party investors have to access the returns of reinsurance to its advantage on both fronts.
