Trapped capital remains a problem for ILS market
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Trapped capital remains a problem for ILS market

david flandro finance ii ils.jpg
David Flandro

The collateralised reinsurance market is yet to resolve the trapped capital issue, according to David Flandro, head of industry analysis and strategic advisory at Howden Tiger.

Speaking on the Insurance Insider webinar “Facing and Overcoming Challenges with Collateralized Reinsurance”, Flandro said trapped capital is a “huge problem, and one we’ve thought about for many years”.

Flandro added that the four key pillars of ILS to an investor are: low correlation to equity markets, liquidity, available for a short duration and high yields.

Bob Forness, CEO of MultiStrat, added that the market needs to improve the speed and efficiency of its settlements if it is to grow.

“We operate in an industry that takes around 60 days to arrange settlement, we have to become more efficient,” Forness said.

The bigger issue, however, for the ILS market is in the multiple years after a loss event that it can take to organise final settlements or commutations of risk with cedants.

The CEO of the specialty reinsurer provided details on how the industry can improve to drive growth, including education, standardisation, exit options and diversification.

On diversification, the panel agreed that cyber has particular growth potential to complement the ILS sector’s cat exposure.

Peter Giacone, senior managing director of KBRA, said: “The cyber market has matured substantially, albeit still relatively small, but growth potential is there and will continue to be there.”

Flandro added: “Cyber is one area outside of nat cat that can grow,” although he believes there are some problems that need to be addressed.

For example, cyber risks might have a longer tail than is suitable for short-duration ILS instruments.

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