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Rolling on
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Rolling on

11 March 2016
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A few years ago when the pace of the ILS market's expansion really began picking up, the concept of the sector having "decoupled" from the reinsurance market engine was first mooted.

But I wonder whether the market's next turning point will come not from decoupling, but recoupling - to the broader capital markets.

Of course, the capital providers behind ILS funds are always monitoring all asset classes to see whether they should tinker with their allocation to our industry.

But sometimes that can feel a distant reality. Even underwriters - who are much closer to that point of decision than a journalist at her computer - will rarely talk about their returns in comparison to other industries, but rather tend to hone in on how rates compare to prior cycles.

Maybe that's a good thing, as it means obsessively safe hands at the steering wheel to try to maintain margins above expected losses.

But on the other hand, fretting about permanently lower returns may be futile if the market is still drawing in investors in the current low-yield environment.

Moreover, remaining solely on the traditional reinsurance railroad means there is little alternative but to track the pace of competitors with permanent sources of capital and different forces driving their pricing requirements.

It also means taking a somewhat repetitive circuit around the year's renewals, stopping off in January, April and June-July before starting the whole thing all over again.

What, though, could the journey look like if the ILS market was harnessed to extra horsepower from institutional investors being more directly involved in the market? Would it lead to faster journeys, with more scenic stop-offs to serve new sponsors or perils?

Of course, there's a chicken-and-egg dilemma here - it's hard to fund the laying of new tracks to convince passengers that the scenic journey will be worth their ride before you've had their fare.

But it's the first part of the journey that always seems the longest.

Topics

Opinion Catastrophe bonds March 2016/1 ILS
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