Despite the many innovations that have occurred in the
insurance-linked securities (ILS) sector in recent years,
and its continued appeal to investors even after some
heavy losses, its growth may be stymied in some areas
because of investors’ uncertainty around certain types of risks and
That is according to some cedants in Europe who have expressed a
desire to use the ILS markets more—but they are either unable to
place deals because of a lack of suitable models or they would like
to complete bigger placements but cannot do so because of investors’
uncertainty over the risk.
These revelations will be of great interest to the ILS community in
Bermuda as they clearly illustrate some of the barriers to growth that still
exist in this market—and what needs to happen for these to be overcome.
Limiting the options
Marco Sordoni, head of reinsurance buying for Italian insurer
UnipolSai Assicurazioni, has stated that he would like to tap the ILS
markets more—but a lack of models relating to certain key perils in
large parts of Europe prevents him doing so.
Speaking to sister publication Intelligent Insurer, he said this is holding
back the development of the ILS market in the continent—and thus
restricting his risk transfer options by preventing cedants generally
accessing ILS sources of capacity.
He believes such models would be enthusiastically received by
insurers in the region keen to access a new form of capacity.
“There is a model for earthquake in Italy but not for flood or wind.
That means my options are limited. I don’t understand why the
modelling companies are not developing models covering more perils
in the region—not just in Italy but in many European countries.
“ILS investors want to expand their remit, but they are reluctant to
take on risk without such a model in place,” he says.
UnipolSai has experienced this first-hand. It has tapped the ILS
markets to complement its traditional reinsurance programme on two
occasions. It was the first issuer to secure coverage for Italian earthquake
risk using ILS, via the €200 million Azzurro Re three-year bond issued
in 2015, which was well received by investors.
It then completed a smaller €45 million bond in February 2019
covering atmospheric perils including snow pressure and flood in
While the ILS sector continues to grow and innovate, investors’
insistence on the use of tried and tested risk models, combined
with a wariness of new risks, is holding the market’s development
back, some cedants claim. Bermuda:Re+ILS investigates.
SHUTTERSTOCK / BRIAN A JACKSON
ILS need for models