According to industry experts, the low volatility and predictable cash flows offered by high frequency and low severity risks in areas such as P&C or reinsurance are increasingly gaining the attention of more investors. experienced looking for relatively uncorrelated returns and higher returns.
Yesterday, Artemis and Vesttoo broadcast a live webcast focusing on the opportunities for investors to access high frequency, low gravity insurance asset classes.
To begin with, Yaniv Bertele, Chairman and CEO (CEO) of Vesttoo, explained that these types of perils, such as motor vehicle liability and accident risk, “all have common ground that separates them from risk. disaster, namely their low volatility and their projected cash flow. “
He went on to explain that the stochastic nature of these risks makes it possible to leverage technology to enable risk transfer, and at the same time educate markets on the attachment probabilities and expected loss distribution functions that could be used to educate rating agencies, for example.
“This is particularly attractive to large asset managers, we think. And as the market democratizes to include more capital market players, we are seeing increased demand for these types of risks. By using technology and multiple data sources, both loss data as well as other sources such as inflation data, we are able to create very accurate forecast for loss development ” , did he declare.
Adding: “I think data-driven technologies allow us to ensure risk transparency and track the performance of these risky sites. Both of which are very important to investors, effectively translating insurance risks into something they can understand better.
According to panelist Mattias Eng, Head of Insurance Solutions, Securis Investment Partners LLP, investor appetite and interest is currently strong not only for conventional real estate investments, but also for accident risks and news. ways to participate in the real estate market.
“And we are also seeing tremendous interest from our investors in creating fixed income assets that offer a high yield, while enjoying a fairly high level of security. And this type of demand that we see mainly for investments in intellectual property type risk. It’s a market that has taken off tremendously over the past year and a half, ”said Eng.
“We are also seeing great interest from our investor base to offer premium financing, commission financing, etc. So there is a huge appetite on the part of investors looking to obtain a pleasant and superior return from investments which are not correlated to the market. risk. By market risk I mean both the stock markets and the credit markets. And also not necessarily correlated with the insurance risks that are already taken in the real estate chat sector, ”he continued.
The live webcast also featured Hedwige Nuyens, Managing Director of the International Banking Federation, who provided some perspectives on the banking world.
“We all know the banks are overflowing with deposits right now. During the COVID period, in fact, the level of deposits among banks increased tremendously. So that means banks are looking for the right kind of investment, and as Mattias said, rightly, banks want to diversify those investments.
“So they know that they have a credit risk portfolio which is very large, they know that they will have to untie the climate related investments. So this type of investment which is related to insurance but different from what conventional credit risks or climate risk represent, could really be an opportunity. Although, of course, subject to transparency, subject to what Yannick said; What about the available data? And the agencies So those are important things too, but I think there is definitely momentum, ”she said.
Sam Gaynor, co-head of the financial services practice, Altamont Capital Partners, told the public that his company, which has a holding company in the life and annuity business and a separate holding company in the lines business commercial, talks a lot about ILS.
“Because on the one hand, from a ceding company’s perspective, as the owner of a primary insurance business, the ILS capability will, I think, be a growing component of our reinsurance stack, both account given the flexibility of what should be an attractive cost of capital. And on the risk-taking side, talking about our life insurance business versus current fixed income returns and the much more attractive risk profile that a diversified portfolio of property and casualty businesses can have. Especially since we’ve been talking about it in the emergency space or in the commercial line space more broadly, where there has just been less ILS penetration, ”Gaynor said.
Adding that “It is a very logical place for the expansion of the industry.”
Gaynor believes this is something that should continue to grow over the next few years, but stressed that there are reasons why it has not happened so far.
“But I hope that over the next few years and with some of the technologies being developed that allow for greater risk transparency, adoption will continue to expand,” Gaynor said.
Watch a replay of the full webcast here.