As the pace of change in the reinsurance market accelerates, there is an expectation that the amount of capital seeking direct access to insurance and reinsurance risks from third-party investors and institutions will more than double to $150 billion by 2020.
Speaking at the SIFMA Insurance and Risk Linked Securities (IRLS) 2015 conference held in New York last week, Michael Millette, who was with Goldman Sachs at the time of speaking but has now left the firm, discussed his views on where insurance-linked securities (ILS), hedge fund reinsurers and the capital markets direct participation in re/insurance was heading over the next five years.
Being near the end of his tenure at the firm, after 21 years which saw him act as an instrumental player in the development of catastrophe bonds and ILS, Millette happily discussed his forecasts for where the ILS market and the participation of third-party capital in reinsurance is heading over the coming years.
In his time at Goldman Sachs Millette was responsible for more than a hundred transactions which brought capital markets capacity to the reinsurance sector, such as cat bonds, sidecars and company launches. As such he is as well placed as anyone to be able to predict where the current market trends take us by 2020.
First, Millette explained where he sees the market right now; “Right now,what I think we see is the direct capital markets footprint of $65 billion, $58B in the funds, $7B outside of the funds, of which about $60 billion is nat cat. And we see about 6 hedge fund, or investment oriented, reinsurers, with over $200m of equity up and running and operating.”
These figures seem extremely reasonable, based on Artemis’ ILS fund managers listing which has over $55.2 billion of capital under management in the included firms. Add in the few funds we do not have sufficient data for, as well as the large direct investing pension funds, and $65 billion is easy to imagine.
Millette went on to explain where he believes these numbers move to by 2020, saying; “I think that where we go with that is $150 billion, of which $100B+ is nat cat, but there’s materially more non-nat cat, direct footprint. With 15 investment oriented reinsurers, of which 9 are public.”
And Millette feels his forecast may be conservative, as there’s room for more growth if the market conditions should become conducive and investor interest in accessing ILS and reinsurance risks continues to grow.
Read the full article via the Artemis website here