transition
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22 December 2015 Alternative Risk Transfer

Looking Forwards – and Back

“I would characterise 2015 as a transitional year,” Schultz told Intelligent ILS. “The volume [of transactions] was of an acceptable level, with a few deals in the fourth quarter of the year that solidified the result, and it feels that, to some degree, we’re now in a period where the markets are at something of a plateau; in a period of transition where investors are looking at the returns that are available and looking at the future growth opportunities, with a little bit of repricing happening in the marketplace.

“So, I would just characterise 2015 as being very different from 2014, which was all about growth. 2015 has been more about the transition of the model – from simply pricing market share of growth to rationalising where the acceptable risk/return levels are in the marketplace and looking at what the associated pricing levels could be.”

Schultz said that he thinks that the market has definitely matured – it’s much more sophisticated in terms of understanding where there are opportunities to deploy capital and a much bigger understanding of structures that are a bit more complex than earlier ones. The market has moved much towards an indemnity market, with different risks coming into the market place.

“We’re also seeing some collateralised markets creating rated companies, so it’s definitely long-term, more sophisticated,” he continued. “I really think that the theme going into 2016 is about creating platforms that enable greater financial solutions for clients, so whether that’s achieved via a simple collateralised strategy, or a collateralised alternate strategy, you’re going to start to see some different structural styles by certain managers. The key for the collateralised market in the near term is how do you best maximise solutions for clients?

“There’s not going to be one style that fits every manager, and so I think that you’re going to see some managers that will feel very comfortable with what they already have, whilst other managers will look to enhance their product offering as their way of adding value. I think that the most important distinction for 2016 is that it’s not simply about capacity. We’re in a cycle in the market right now where there is ample capacity from a lot of different sources, and so what clients are actually now exploring are relationships and broader solutions, and there are some implications for all managers when they think about how they’re going to be able to achieve this and manage their relationship with their clients.

“I think that there’s been an evolution of the model. Very few sectors have a linear growth rate. You tend to have a period of accelerated growth, then you tend to have a time when you rationalise the business plan and plot the next phase of the growth story, as it were.

“If you look back over just the past three or four years, we’ve had significant growth and we’re at a time in the market where the market dynamics are very different from where they were a few years ago. So the period we’re in right now is one where the market is flush with capacity – there’s no shortage at all in capacity – and so that creates a different environment in which everyone will compete, and I think what you have is what I would describe as more convergence than we’ve had in the market to date, because we have true rated underwriting companies creating more collateralised types of facilities. You’ve got some acquisitions like the Markel/CATCo deal, you’ve got a collateralised market creating trading vehicles, so what’s happening is that the trading synergies, for the first time in a long time, can be quite similar, whether the manager is known traditionally as an underwriter or an ILS manager.

“The more we develop, the more we become a little more integrated – that’s not for everybody, but it’s now about how do you position yourself as a partner, as a financial solutions provider, with your clients, and how should you maximise the opportunities for your stakeholders.”

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