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Bill Dubinsky, CEO of Gallagher Securities, has highlighted that a key challenge for the insurance-linked securities (ILS) market heading into next year will be sustaining the growth momentum seen in 2023 and 2024, given a certain amount of activity this year was deals brought forward that would have otherwise naturally occurred in 2025.
Speaking with Artemis during the reinsurance conference season, Dubinsky outlined several promising growth opportunities for the ILS segment while also addressing potential difficulties that may arise.
“One of the challenges for 2025, from a broader market perspective, is there was a certain amount of activity in 2024 that was sort of bringing forward deals that would have naturally occurred in 2025,” Dubinsky explained when discussing the market’s prospects for next year.
He continued, “To replace that activity in 2025, it can’t come from those same sponsors that have already effectively done their 2025 deals. It has to come from different sponsors, and I think some of that will happen, but it does reduce the ability to repeat the growth that we saw in 2024 and 2023 in 2025.
“So there definitely are some headwinds to achieve that same level of growth in 2025, even though we’re bullish not only for 2025 but more broadly for market growth in cat bonds as well as other forms of ILS.”
Artemis also asked what the executive’s expectations are for new peril investment opportunities for the rest of the year and into the next, given that the focus on expanding the ILS asset class continues into new areas such as cyber and casualty lines.
“For cyber, it’s not necessarily going to be straight up at a vertical growth pattern, but rather steady growth,” Dubinsky said.
He went on to note that investors are doing the work, which reportedly consists of the managers themselves trying to understand the risk while also communicating what they’ve learned to end investors and pensions.
“That’s a deliberate process. It’s been going on for five years or longer, in some cases, and as cyber ILS continues to gain traction, and the investors get more familiarity and see a larger pool of deals, cyber certainly seems promising,” Dubinsky stated.
He underlined work on other perils, noting that there have been a few casualty deals over the years.
Dubinsky added, “We worked on workers comp transactions as well as third party motor liability transactions in cat bond form, but there are also cat light transactions, sidecars, funds, and facilities in the casualty area.
“There also continues to be a lot of focus on health insurance and life insurance for the ILS space, which remains a significant opportunity.”
Continuing on the investor topic, Artemis asked what they should be looking at, for, or focusing on when analysing and comparing ILS investment opportunities.
“I think it has to get back to what each investor’s fund strategy and the promises they’ve made to their pension funds or other end investors are,” Dubinsky said.
He went on, “One of the great things about the market, similar to the reinsurance market, is there’s not a one-size-fits-all approach. Our job as an intermediary is to match risk and capital, whether it’s in traditional reinsurance or ILS form.
“I think that an investor that’s going to be effective is one that sticks to what they told their pension funds and stakeholders they’re going to do. The demand for transparency from the investors has largely been met by the sponsors in the market to provide good information to evaluate risks.
“Whether it’s loss history, portfolio information, or third party modelling, all of this is available for them to make the right decisions for their funds.
“Now, at some point, if they’re asking for more than is feasible, you run into a challenge from an expense, complexity and timeline perspective. If so, there’s got to be a balance between the investor demands and the cost and effort to comply.
“If the ILS market ends up demanding ten times as much expense and disclosure as the traditional reinsurance markets – not currently the case to be clear – then obviously, there’s a problem.”
Dubinsky also addressed Gallagher’s outlook on investor sentiment in private ILS, noting that in recent years, raising capital for collateralised re-style funds has become more challenging, with a noticeable decline in opportunistic money.
“Opportunistic mandates are flexible to invest wherever they see the most relative value between collateralised re and cat bonds, for example,” he said.
Dubinsky continued, “What that means in the short term is there’s less flexibility to grow collateralised re volume and cat light issuance, but over the long term, there probably is room for somewhat of a rebound, for more pure collateralised re money and more opportunistic money to come back into the market.
“It didn’t as much go away as the proportion fell, and we’re not yet hearing that there are gangbusters of money coming in for that, but certainly, there’s an expectation that, over time, it will rebound.
“It seems unlikely to rebound in time for 1/1, for example, but over time, we would expect to see more capacity from both pools of money.”
Gallagher Securities CEO flags challenges in maintaining ILS growth trajectory in 2025 was published by: www.Artemis.bm
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