A giant ILS reset, with higher pricing to persist: SIFMA ILS

At the 2023 SIFMA ILS conference in Miami yesterday, speakers explained that the insurance-linked securities (ILS) market has undergone a giant reset and that the now-higher rate environment is anticipated to persist, leading others to cite their optimism for the asset class going forwards.

The first panel of the day at SIFMA’s ILS conference saw John Seo, Co-Founder and Managing Director at Fermat Capital Management, LLC, explaining his positivity on the opportunity, as well as on growing investor interest.

“Forward-looking conditions for investors are probably the most attractive in the history of the asset class,” Seo told the audience.

Adding that, “Really 2022 is just a giant reset.”

He continued to explain, “What’s really interesting to me, is that we could actually see it starting even earlier in the year, well before Ian. For some people, it’s a hurricane Ian story. But Ian is a compound event, it’s on top of the basic picture.

“Really what we see here is that, for a good five or six years, a lot of investors were holding back on the asset class. Many were actually downsizing not exiting, but now we see them ramping up their commitment. We’re seeing allocations going on every day.

“It’s very exciting in that sense, that they believe that conditions and rates have been reset to the point that they’re willing to make all-time high cyclical commitments of capital to the asset class.”

Participating in the discussion as well, Stephan Ruoff, Global Head of Schroders Capital ILS, explained that momentum continues to build and the outlook is becoming far more positive.

“Ian really tilted the whole situation. We were very uncertain about what was going to happen,” Ruoff said. “Many investors have been around for a long time, they have not been allocating big-time, but they’ve not been exiting the asset class either.”

He continued on investor sentiment for ILS, “It was revealing to talk to them, because then they started asking questions, like, ok when can we top up and do you think it’s really now a momentum shift?”

Leading Ruoff to say that, “Ever since Q4, last year, we have seen that momentum building up and the message is, yes, I think there is a momentum shift and that’s why we feel relatively optimistic.”

Later in the panel session, Seo from Fermat Capital Management explained that he feels that pricing trends won’t reverse significantly.

Going forwards, Seo explained that, “Overall pricing is definitely going to be higher, I think that’s just the reality.

“It’s going to be structurally higher going forward too, even into 2024 and 2025. But hopefully, in change, what sponsors get is stability.”

Seo continued, “I think we’re going to get closer to that reality and stability, and I think that ultimately, policyholders are willing to pay that rate.

“So, we’re in for an era of a great reset, but I think a more stable and sustainable market.”

Asked whether pricing can go higher than we see today, Seo commented, “I don’t think it can go higher, so really we’re calling the top here. But, it’s not going to zoom down to 2015 levels quickly, or ever actually.”