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The London Market has the potential to broaden the scale and scope of the insurance-linked securities (ILS) markets by using its unique talent pool to help introduce new perils and bring new sponsors into the sector, Des Potter, managing director of GC Securities, told Monte Carlo Today.
Potter said that one of the motivations for establishing the new legislation was not simply to introduce an ILS capability into the London Market for the first time, but also to leverage the huge talent in the market to better support reinsurance and specialty insurance risk transfer.
“The concentration of talent in London is unique. There is nowhere else in the world where you can access the same breadth and depth of talent in reinsurance and financial markets as you can here,” he said.
“It is about capitalising on the wealth of talent within the Square Mile to take the market forward.”
He believes that success for London in the ILS space will be based on its ability to bring something new and different to the ILS sector to help expand the market.
“It is about bringing new perils and new sponsors to the sector and by so doing growing the reinsurance market. It is about convincing governments and corporations that they can transfer more risk into the ILS market and enabling them to do so.
“London has the capability to help expand the ILS remit into areas in which it has not yet gained traction, such as the terrorism and flood markets,” Potter said.
GC Securities is working on a number of transactions that are looking to bring new perils into the ILS arena.
Potter added that London’s reputation as a territory with the highest regulatory standards also enhances its appeal, for cedants and investors alike.
“For cedants and investors, the fact they are working with a special purpose vehicle (SPV) regulated in a territory recognised for the high standards of regulation it maintains is very appealing.
“The calibre of the regulatory oversight provides a more enticing opportunity for clients who are considering transferring risk through an SPV and more opportunity for investors buying the securities issued,” he said.
He added that London also has the potential to play a more meaningful role in the global ILS market. “We have a chance to play a prominent role in supporting and enabling growth in the ILS space,” he said.
“This will be a medium- to long-term goal and it could be a steep learning curve from a regulatory standpoint. The Prudential Regulation Authority needs to become fully comfortable with the new regulatory framework and the authorisation and supervision required.
“This will take time and will come with transactional experience.”
In terms of the wider ILS markets, Potter has observed a recent shift in how capital is being deployed. Historically it was deployed in dedicated ILS managers owned by other asset managers, he said. Now, investors are becoming more comfortable deploying their capital into funds which are owned, managed by or aligned with traditional reinsurers.
“This is a very interesting development. A key driver for this is distribution,” he said. “There is far more capital waiting to be deployed than is required.
“Whereas a dedicated ILS fund manager offers access only to property cat-related risks, a reinsurer is better positioned to support clients with a whole range of risks, so your ability to access other perils is enhanced.”