The timing of cat bond deals, casualty ILS structures, cyber bond market growth and the outlook for gradually softening property cat premiums were all points discussed during the Insurance Insider ILS roundtable at the Monte Carlo Rendez-Vous earlier this week, in association with Conyers.
The time taken to build a book for a new cat bond issuance was among the topics raised, with participants noting that managers would need to prepare for a sizeable pipeline of new deals slated in the months ahead.
Brokers noted that delays in investors assessing new cat bond deals risked making the cat bond product less competitive versus other options. This is the case because sponsors generally want to make buying decisions once all options are on the table and given that pricing is subject to capital availability, they said.
Speakers generally settled on the point that two weeks is an appropriate timeframe to market and close a cat bond deal.
However, challenges in recruiting analyst-level staff emerged, and it was suggested that ILS managers need to step up the pace of their infrastructure development efforts to support the fast-growing cat bond market.
Cyber cat bonds
Roundtable participants generally agreed that the cyber bond space would continue to grow and has the potential to become a meaningful proportion of the overall cat bond market.
The discussion noted that the current $600mn-$700mn of cat bond notional outstanding is less than 2% of total cat bond notional outstanding of $46bn.
There was praise for efforts made over many months and years to support new investors to learn about cyber risk and get comfortable with investing in the product.
Additionally, cyber backstop initiatives around the world had supported market growth by removing certain critical infrastructure exposures from the risk pool.
Casualty ILS
In the casualty arena, roundtable participants alluded to deals that have been placed this year, noting a lot of interest in the class from ILS investors.
The key to the risk as an ILS play was around valuation of the exposures on a regular basis, with one speaker noting that quarterly valuation marks were emerging as a feature of ILS casualty investments.
Collateralised casualty quota share deals were noted to be appropriate vehicles for capital that had a longer-term investment horizon. Meanwhile, other ILS structures continued to present challenges to structurers, particularly around timely exits for investors. Pre-agreed run-off transactions that would offer an exit for investors and be set out in the contract from the outset of a deal were considered difficult to make work.
Property cat premiums
Premiums and terms on conditions on property cat deals also formed part of the roundtable discussion as the ILS market looks ahead to the 1 January renewal.
A speaker noted that there was likely to be some redemption of profits from funds at the end of the year, while rated carriers might use earnings from property cat books to strengthen casualty reserves.
However, on the other side, there was an expectation that investors may have to give up some of their premium advantage in a generally softening market for property cat.
Aggregate covers in cat bond form were also expected to feature in the market.