Discussing the road to a $200 billion insurance-linked securities (ILS) market at the SIFMA ILS 2025 conference in Miami today, speakers stressed that considered deployment of capital at reasonable pricing and terms will be critical to continuing and perhaps accelerating the current growth trajectory.
With catastrophe bond issuance on record-setting pace in 2025 so far and investor appetite for private reinsurance opportunities seen to be expanding, panellists in the first session of the event were keen to point out that a careful approach to managing ILS capital levels, pricing and terms will all be important to sustaining investor interest in the space.
Chris Parry, Global Head at RenaissanceRe Capital Partners began, “For us, alternative capital is part of the DNA of RenRe, and we’ve been managing third party capital, utilising third party capital, for 25 years.
“So for us, obviously, it’s very important to see further growth in that and see further capital coming into the market. But one, and it’s a slightly contrarian view, is that size isn’t everything in terms of the market and I think if we are going to grow the size of alternative capital, we have to do it in a very thoughtful and methodical way.
“We don’t necessarily want to see a flood of capital coming into the market, suppressing rate, having detrimental impact to terms and conditions.
“The other aspect, which would be to the net benefit of all parties, is if we see a growth in the overall pie in terms of premium.
“If you can combine growth in demand, growth in the size of the reinsurance, the retro, the ILS market, with capital coming in at the right time, I think that’s the best way to think about it. We think very much of, let’s access the risk first and then bring the capital afterwards. So rather than the other way around, which is raise capital and deploy it to the market.”
Stephan Ruoff, Co-Head of Private Debt & Credit Alternatives, and Chairman of ILS at Schroders Capital carried on, “I don’t think it’s fair to say we’re raising money before we can deploy it actually. We’ve been known for what I would call careful and long term deployment of capital. But you were right, I think you need to grow investor interest, because the volatility of in and outflows into the ILS market can create problems for the sponsor market as well.
“Latest example was last year, when you think back to what happened in April and May, when the market very quickly dried up in capacity that was deployed, spreads soared high and it was almost impossible to get some transactions over the line. I think that’s a situation no one really wants.
“I think your point about the equilibrium of capacity available, on the one side, but also sponsors are willing to transact, I think is very important, and that balance is a fine line between price, or offer and demand. I would always caution, in terms of to put funding together with the offer, in terms of capacity to be deployed.”
Eveline Takken-Somers, Senior Investment Manager, PGGM added, “We have a strategic allocation to ILS, we’re close to 3% of pension fund assets. But, as we are growing the market it does not necessarily mean we will grow with that. I think it needs to come with attractive risk adjusted returns and managing terms and conditions is important to keeping investors interest.
“Coming back to your question, if we want to grow this market to $200 billion, it is important that rates are sustainable and at relatively attractive levels for all investors who participate in that.”
Benjamin Jacquet, Senior ILS Structurer, Risk Partnerships Team, SCOR commented on avenues of growth for ILS, “Generally we’ve seen a broadening of interest, the harder market in recent years has opened new conversations. Discussions have led to certain investors, certain type of investors, realising, okay there is more than just cat in insurance risk, and there is a benefit in non-cat risk, which is in large parts not correlated to financial markets.
“That’s beneficial for the ILS market as a whole, to be less dependent on cat and also less exposed to certain perils like US wind.
“That brings value for the investors, but also for certain sponsors who want to share more than just their cat risk.”
Parry from RenRe further said, “I would say, though, the overall pie has to grow pretty meaningful in order for it to get to that $200 billion. We’ve obviously seen some degree of erosion of traditional market share in the last few years, cat bonds at the top-end of programs really providing a compelling alternative to traditional.
“In terms of having to get to that $200 billion, I think we need a combination of growth and maybe further evolution of the product set that the ILS market offers.”
