16 September 2014 Alternative Risk Transfer

ILS: complex but lucrative, say buyers

With an increasing number of re/insurers beginning to enter the insurance-linked securities (ILS) market and issue cat bonds, two senior executives from users of these markets described the process at an event in Monte Carlo.

Speaking at Munich Re’s ILS roundtable at the Monte Carlo Rendez-Vous, Franco Urlini, head of group reinsurance and R&D at Generali, and Jim Fiore, chief reinsurance officer at QBE, explained the positives and the costs of entering the market.

Urlini said: “We’ve been monitoring this market for a while, although as a European carrier, we have very limited US exposure. It’s all about finding diversifiers and at a certain point last year we recognised the opportunity. We were also very much in favour of having an ILS solution fully integrated in our insurance structure.

“All of these things were potentially available a few months ago, particularly when we were more seriously thinking of a solution. We have become a part of this very interesting and technical market.”

Launched in April this year, its cat bond Lion I Re provides Generali with €190 million of per occurrence protection in respect of losses stemming from Europe windstorms over a three-year period.

Fiore said that QBE had been working with the collateralised reinsurance market for a number of years before it eventually launched its first cat bond, the $250 million VenTerra Re.

He said the company also spent a lot of time with the Australian regulator to educate them on cat bonds and to ensure the transaction was approved.

“When we decided to do the cat bond, it was a combination of US exposure as well as Australian exposure. This brought a number of challenges, for example, differential currencies and getting the regulator to approve the transaction. But in the end we got there,” Fiore said.

Fiore said the deal took a long time and required a lot of work. He said there was “miles and miles of paperwork involved” and added “we had to find individuals who were 100 percent dedicated to driving the process through”.

Urlini agreed on some of the negatives in terms of the complexity and the amount of time such deals take. But he added that the process for Generali did not take as long as it did for QBE. The cat bond was approved in September 2013 and went to market at the end of April 2014.

He was also positive around the approach to new capacity providers. “In the traditional market it takes a lot of time to accept a new insurer. Because of the type of product in ILS, we don’t have to wait as long and we are happy to establish in a number of weeks. This makes the market much more dynamic,” he said.

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