Sidecars and private deals will boom in 2015
The insurance-linked securities (ILS) market will undergo an increase in proportional reinsurance via sidecars, and growth in the private deal area in 2015, according to Bill Dubinsky, head of ILS at Willis Capital Markets and Advisory (WCMA).
Dubinsky said that as investors become more sophisticated, they are responding to clients’ needs for selectively more flexible terms, which besides excess of loss reinsurance (whether cat bonds or collateralised re), will result in an increased interest in proportional reinsurance via sidecars, adding that the rise in private bonds will be accountable to evolving technology.
“We also expect more new sponsors to access the market, and at the same time expect existing sponsors to find some additional uses for ILS, continuing the trend of the past two years.
“The expansion in sponsors and applications has come from a combination of improving economics and an improving knowledge base among brokers and ceding companies regarding how to blend the solutions effectively intoreinsurance programmes,” he said.
Dubinsky added that while talk of ILS will be “a little more in the background” at this year’s PCI Annual Meeting, the evident shift from reinsurers who have previously been hostile towards the acceptance of the market will be visible.
“Collateralised reinsurance and cat bonds are now maturing into simply a regular part of the market. ILS is part of what is making reinsurance more of a buyer’s market,” he said.
He added that the widespread knowledge of ILS has allowed the market to make the transition from ‘is it relevant?’ to ‘what happens next?’.
He also spoke of the growing use of ILS as a solution to solve sovereign risk.
“A growing ILS market with increasingly competitive pricing, terms, and conditions makes more deals economically viable. This benefits governments and corporates as well as reinsurance clients such as private and residual market insurers,” he said.
“For governments and corporates, often the decision is one of retaining versus transferring risk. This is where the traditional market is effectively tapped out without a substantial price jump, so ILS has the potential to make additional risk transfer more attractive.”