New Horizons in Casualty ILS: A dynamic opportunity for underwriting experts and capital markets innovators
Jason Sykes, Advisor - 20Twenty Search
Casualty ILS is emerging as an exciting opportunity for underwriting experts looking to make the leap into asset management / capital markets, as well as for Property Cat ILS specialists seeking a change of role in a dynamic growth sector.
These securities are gaining traction rapidly after first emerging around a decade ago. Initially, they were deemed by many investors as too complex and too restrictive, given the long-tail nature of Casualty risk, and were almost exclusively the province of hedge funds. However, innovation in the structuring of these securities is among a range of factors that are broadening their appeal, with institutional investors, pension funds, and family offices now among their fans.
MultiStrat, the specialist underwriter, reinsurance investment facilitator, and Casualty insurance-linked securities (ILS) company, recently estimated current capacity for non-cat ILS, including Casualty and Specialty, at $3-4 billion and cited industry expectations that this will rise to about $10 billion by 2026. At a February conference organised by specialist ILS publication Artemis, panellists agreed that the Casualty ILS market is likely to double or triple each year over the next three years.
In an environment of extended high interest rates and with the use of leverage on Casualty ILS deals, the returns of 20%-plus achievable from Casualty ILS make them highly attractive. So too does the sheer divzersity of the Casualty risk underpinning these instruments, and the fact that, notwithstanding social inflation, Casualty is predominantly a frequency rather than severity risk. That means that, by contrast to Property Cat ILS, investors’ principal is unlikely to be wiped out. The increased availability and improved deployment of data and analytics is another driver of Casualty ILS growth. And in terms of structuring, the forward exit options now being offered are increasingly addressing concerns about liquidity.
While it is certainly true that the fraud scandal around the Vesttoo platform dealt a blow to the whole ILS market, the additional controls subsequently introduced around collateral, including secured, encrypted communication for all counterparties, have gone a long way to restoring confidence.
In an environment of stuttering economic growth, with equities currently trading at heady heights, Casualty ILS offer genuine portfolio diversification with minimal correlation with traditional asset classes. They are poised without a doubt to make a highly significant contribution to the growth of the ILS market overall.
High-performing Casualty underwriting specialists looking to change direction are well placed to make the move given their deep understanding of this risk. A combination of risk-selection expertise with an ability to talk to institutional investors and explain the Casualty ILS proposition in a way they can understand, would make any candidate extremely well placed to cross over into the capital markets and reap the benefits of a higher salary.
Meanwhile, for Property Cat ILS specialists, the Casualty ILS market offers a dynamism and mobility that is sometimes missing in the traditional ILS sector, where people tend to come and stay put.
Of course, a move into ILS from (re)insurance underwriting has its challenges. Like Premiership football fans’ attitude to players and managers, capital-markets investors are unforgiving of under-performance. While those writing risk onto a balance sheet at an insurer or reinsurer may be able to ride out two or three poorly performing “seasons”, ILS’ failings, as well as successes, are immediately apparent.
At 20Twenty Search we have a key focus on the ILS industry and alternative risk transfer recruitment. We would love to talk to you if you’re contemplating moving into this vibrant growth market and put you in touch with some of the preeminent companies in this space. For companies looking to build expertise in Casualty ILS in preparation for a surge in demand, we can offer a global talent pool of internationally mobile candidates and a bespoke service that offers utmost confidentiality and transparency, featuring detailed talent maps for each search mandate and in-depth candidate reports.
The future looks bright for Casualty ILS and we at 20Twenty Search are looking forward to connecting outstanding talent with the best opportunities.
Jason is an entrepreneur with over 25 years of international business experience and within that time was instrumental in building a global recruitment business. His energetic and flexible style has enabled him to recruit, lead and develop teams in different locations and cultures, as well as achieve outstanding results in the field of sales and recruitment.