ILS won’t reach full potential with one-way bet vs climate change: Vesttoo’s Kirwan

For the insurance-linked securities (ILS) market to reach its full-potential, expansion through the provision of new lines of risk to a growing investor-base are key, while a one-way bet versus climate change won’t deliver the growth the sector deserves, according to Vesttoo’s Brian Kirwan.

The ILS market has opportunities for growth right now, with institutional investors increasingly attuned to the risks of inflation, volatility and capital market correlation, all of which means ILS should prove increasingly attractive and gain more share of investor attention at the same time.

But speaking with Artemis in a recent interview around the Monte Carlo Reinsurance Rendezvous 2022, Brian Kirwan, General Manager, Europe at Vesttoo, the insurtech that uses proprietary artificial intelligence and machine learning to help companies assess and transfer risks to the capital markets, believes this is an optimal time for the market to identify and action expansion plans.

We asked Kirwan what he sees as the most important areas of focus for the ILS market and where Vesttoo will be applying itself.

“The obvious answer is we should be thinking about our key customers’ needs, Clients and Investors, he explained.

Adding that, at Vesttoo, “We see continued high levels of demand for Quota Shares and Stop Losses in the non-cat space. Providing new capacity as well as delivering a high level of service to our brokers and clients in terms of clarity on renewal capacity, details of appetite, pricing, claims and superior renewal execution are our fundamental insurance market aims.

“For our investors; building trust by continuing to deliver; low volatility returns through tech-driven modelling, excellent ramp up of portfolio through our broker network and a transparent, no surprise culture; transparent pricing and clarity on market trends and pricing.”

After recent year’s of natural catastrophe losses Kirwan said the ILS market does have some challenges it needs to overcome.

“The challenge remains consistent over time, the market needs to build up trust with a wider body of investors in a wider range of insurance risks.

“The delivery of predictable returns in a no surprise environment is the biggest challenge,” he told Artemis.

Growth opportunities do exist, even as the market continues to recover from recent loss years.

“We continue to see opportunities for growth, we see the biggest growth in the supply of reinsurance / quasi capital structures for MGAs as they continue to grow and expand their offerings,” he explained.

But cautioned that, “The catalyst for growth has to be the continued provision of new lines of business to investors.

“Focusing on a one-way bet versus climate change will not allow the market to reach its full potential.”

He expanded on this statement, suggesting that ILS markets may need to heed the signals coming from re/insurers.

“Looking at market returns for taking natural catastrophe risk and the reasons for the Reinsurance pull back, not driven by lack of market capacity, but out of a continued poor trend in mid and large losses, it would seem an odd choice to fill out the gap left by their exit,” Kirwan said.

Adding, “Expansion into new lines, such as general liability and cyber do provide opportunities for growth. Possibly the largest opportunity comes in the reimagining of the supply chain for Insurance Risk. Continued increase in retentions for captives, MGAs and broker facilities will lead to opportunities to more directly access the capital markets. Inflation in costs is likely to continue the push for more streamlined supply chains.”

For investors, he noted the importance of doing their homework on ILS investment opportunities, saying that investors should be focusing on the, “Relative return of different classes and the quality of the analytics backing their decision.”

At Vesttoo, the focus is on continuing to build-out the infrastructure, origination and investment offerings.

“We will continue to grow based on our current value added, superior service to our broker and cedent community and transparent pricing and effective risk ramp up for our investors,” Kirwan explained.

“Our ability to effectively grow our book using tech-based structures will give us the business operational leverage to grow while maintaining a cost base that will be difficult to match.

“Automated execution coupled with unrivalled access for investors to insurance risk, will provide a step change in our ability to meet investor, broker and cedent demand,” he stated.

Read all of our interviews with ILS market and reinsurance sector professionals here.