The ILS investor base has matured

The insurance-linked securities (ILS) market and its investors have become far more sophisticated, according to Andrew Ritchie, partner—insurance Autonomous Research.

The expert made the comments at Munich Re’s 7th ILS roundtable held in Monte Carlo.

Ritchie said that equity investors have “matured in their view” of the ILS market.

“They were very cynical a few years ago about ILS, about its longevity. There was a view that model dependence was worrying and spreads were too low.

“But there is an awareness now that it is a more sophisticated market, the investor base is sophisticated and the ILS market is here to stay,” he said.

Ritchie added that investors now have an expectation that almost all insurers and reinsurers will make use of the lower cost of capital available to help them cover their peak risks.

He claimed that a sense is starting to emerge that the board of an insurer or reinsurer is “not doing its traditional duty” if it doesn’t use some alternative capacity in this way.

Talking about reinsurers specifically, Ritchie added: “In terms of specific perceptions, I can say that reinsurers who have brought in ILS managers as part of their overall package are viewed very positively. Investors think that ILS helps them manage risks in a more cost-effective way.”

He said that there was also a positive view of larger insurers that use ILS to reduce peak risks. He particularly mentioned Zurich, in terms of how the firm has restructured its programme.