Potential for cat bond market to double, say ILS NYC 2023 speakers

On Friday February 10th, more than 380 attendees at our annual ILS NYC 2023 conference in New York heard industry expert speakers explaining the significant potential for the catastrophe bond and ILS market to reach new heights this year and beyond.

A full and engaged main room heard thought-provoking discussions from our 17 speakers covering a range of insurance-linked securities (ILS) topics.

Sessions all fell under our “(Re)construction & Renewal(s)” theme for the day and focused on the catastrophe bond, collateralized reinsurance, the Florida marketplace and new avenues for insurance-linked securities (ILS) market growth.

We’ll bring you more articles covering highlights from the event over the coming weeks and in time every ILS NYC 2023 session will be available in video and as a podcast episode as well, so do look out for that.

One quick takeaway for today, is the fact industry leaders are particularly bullish on prospects for the catastrophe bond market.

With reinsurance demand rising and capacity dented, while cedents continue to appreciate the multi-year and well-structured nature of catastrophe bond coverage, some of our speakers believe there is a chance for the market to experience a particularly significant year, with a doubling of issuance seen as a possibility, if all the stars aligned.

Leading our first session of the day, John Seo, Co-Founder and Managing Director at Fermat Capital Management, LLC, told the audience, “We’ve had some several rough years in the market, punctuated by hurricane Ian. And now the cat bond market is going to be expected to support roughly a doubling of the issuance volume this year. It’s obviously early, but it looks like that’s going to get pulled off.

“So, it’s a good time to talk about resetting expectations among investors, sponsors, and catastrophe modellers.”

Philipp Kusche, Global Head of ILS & Capital Solutions at broking house Howden Tiger, concurred by saying, “I think there is a potential opportunity for the cat bond market to double this year, we would fully echo that this could be a transformational year for the ILS market.

“I think there’s enough demand out there, from a capacity perspective, the tricky bit is matching that demand with capital.”

“We have seen times in the marketplace where the certainty around price, and even more importantly around capacity, has not been fully clear for sponsors which are embarking on a cat bond journey that takes three to four months to complete.

“So, I think the open dialogue between firms like us and investors is crucial to make sure that we can get to that point.”

Later during this first hour long session, Chris McKeown, Chief Executive of Reinsurance, ILS & Innovation at Vantage Risk, highlighted the continued need to push to expand the remit of the catastrophe bond, to match cedent appetite for protection.

McKeown said that, “There are other lines of business that might avail themselves of the cat bond structure that have been explored but discounted.

“But, if it’s a doubling of issuance, or a doubling in supply of investor interest that’s expected, it would be interesting to see if that can be to a broader spectrum of risk.”

On the capital side, as matching investor flows to the appetite for reinsurance protection is going to be an area that requires specific attention in 2023, Lorenzo Volpi, Deputy CEO and Managing Partner at Leadenhall Capital Partners LLP explained that while the ILS market has been affected by broader capital market volatility, now is the time for investors to maximise their opportunity in the space.

Volpi explained that, “Liquidity has been an issue across the capital markets, right? It’s not just the cat bond market. So, I don’t think sponsors should be worried about it, it’s not just us.

“It’s clear that we, as an industry, are working very hard to find more capital, because it’s a great entry point for investors.

“Now is the time. We need capital, and we need to convince investors that there is an opportunity out there.”

Our final speaker during the first panel session of the day, Mariagiovanna (Patti) Guatteri, CEO / CIO at Swiss Re Insurance-Linked Investment Advisors Corporation, discussed the important role of the catastrophe bond within the range of reinsurance and retrocessional protection products.

Guatteri pointed out the need for investors and investment managers to have transparency, and how the cat bond can deliver on this.

“It’s a trade-off, right, you cannot fulfil all the needs of the sponsor, if investment managers don’t get that level of transparency.

“I think that kind of drives the design, and the simplification of the cat bond structures, and they have a place in the market, they serve a purpose and are complementary to everything else,” Guatteri said.

Adding, “But I don’t think we should push a cat bond to be closer to collateralized reinsurance structures unless we also get that level of transparency around exposure etc.”

The conference speakers and attendees had a very positive outlook on the cat bond and ILS market opportunity in 2023 and beyond, while the many institutional investors and managers in the room are looking for opportunities to tap insurance and reinsurance-linked returns in new and innovative ways.

But the catastrophe bond looks set to remain a core and growing piece of the overall ILS and reinsurance market offering, with a significant chance for growth and to deliver the returns investors are seeking.

Thank you to all of our speakers, sponsors and attendees for their support for Artemis ILS NYC 2023. We hope you enjoyed the day and we look forward to seeing you next year!

For all enquiries regarding sponsorship opportunities for Artemis events please contact [email protected]

Our conference sponsors can be seen below, we thank them all for their valued support: