ILS investors want more transparency in models
Investors would like to see multiple risk models used collaboratively to increase transparency in the ILS sector.
That is the view of Aashh Parekh, a director and research analyst for the Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF) speaking ahead of this year’s SIFMA Insurance and Risk-Linked Securities conference taking place in New York this week.
“Investors are looking for a few different things to improve transparency, certainly reliable models. They are also looking to evaluate the output from more than one model if they can. We don’t think that any model alone is sufficient, so we would like to see the market evolve towards being able to evaluate the output from numerous models, which is certainly possible. We also are looking for more transparency when it comes to how the risk is being modelled,” said Parekh.
“It has had a positive impact in that every improvement in risk modelling is good, generally speaking, but it still remains a fairly model driven sector, so from that point, investors understand what the limitations are. For TIAA CREF in particular, modelling is just one of many different factors we look at in the investment process along with insurance portfolio quality and sponsor experience, just to name a few.”
This growing sophistication has also been reflected in innovations in the way indexes and models are used and the types of structures offered to investors as a result. Parekh said investors have accepted and even welcomed some changes although he also notes that the issuers have been the greater beneficiaries.
“Over the last 12 months there are elements of features that have existed before, but are being used more now as the market is more accepting of them. Variable resets and indemnity loss triggers have been available for a while, but they’re more accepted in today’s market,” he said.
“There are clear advantages for the issuers in that the coverage can be adjusted on an ongoing basis throughout the life of the transaction within certain parameters. For investors, the benefit is still a little unknown. Some structures are reflective of the fact there is more demand out there that will lend itself to certain changes in the market.”
To read the full article in Intelligent Insurer’s supplement called ILS from all angles, look out for a copy at the SIFMA conference, or email john.walsh@newtonmedia.co.uk to obtain a digital version.
