Improved efficiency is “critical” if secondary trading in ILS is to grow, Shang-Wei Ye, senior analyst at Securis, said at the Sifma ILS Conference’s traders panel last week.
Ye said improvements could include more detailed and timely information sharing.
Sandeep Ramachandran, portfolio manager at Pier61 Partners, said that having different views of the asset class from different types of traders “is what makes the market more fluid and grow in size”.
“If everyone has the same opinion, there’s not much value traded around,” the portfolio manager said.
Ramachandran added that a wide investor base in the primary market would also be vital for the broader cat bond market to grow over the next five to 10 years.
“It’s critical that we have different types of investors, not just the dedicated ILS funds, but some other multi-strategy funds who have a different viewpoint.”
Anja Eglin, investment manager at LGT, pointed to three factors that would improve the secondary market – greater transparency, a uniformed trading platform and high-quality product.
Looking ahead, Ye said his visibility on a 10-year view of the cat bond market was “murky”, but that in the near term, it was evident that cat bonds have become an established part of sponsor and investor strategies.
The panellists noted the cat bond market’s previous attempts to grow and diversify with life and non-cat deals, with cyber bonds the latest peril to come into the space.
However, they noted that the appeal of cat risk comes from it being relatively short-tail, with a lack of financial market correlation and a relative simplicity to explaining the value proposition.
These factors are “important to investors who value transparent and liquid products,” said Ye.
“The challenge will be bringing a longer tail-type risk and packaging it in a way that can still meet those investors’ needs.”
Ramachandran believes that investors will “still gravitate towards the shorter tail lines of business”.
Eglin added that AI would bring administrative benefits to an ILS market that still “surprisingly does a lot of manual work”.
“Another area where AI can help is on the plaintiff side, to settle claims more efficiently and quickly,” Ramachandran added.
“For example, drone technology used to identify losses from a hurricane quicker, which leads to claims being settled quicker and people [having] more confidence in the product and the market.”