Tough ILS markets still add value
If there is one question that reinsurance industry magazines are obsessed with asking, it’s whether the market is close to finding a pricing floor. But Securis co-founder and CEO Rob Procter thinks the column inches devoted to this topic might be in vain.
“I’m not a big believer in the existence of a pricing floor, unless you’re talking about capital constrained business,” he says. “People will continue to find ways to change their model loadings, to reduce their view of risk to stay on programmes – this is what we’re seeing.”
This isn’t all illogical behaviour, he points out. Given that models are generally built by looking back at historical experience, the longer there’s no major loss event, the more likely it is that modelled risk is dropping.
The way that Securis tries to counter such behaviour is by spreading its net as widely as possible at renewals time. “We try and originate as many transactions as possible, that’s why we’re a team of 48. We’re a large team based here in London and in Bermuda.
“By being able to participate in different market segments, it does give you an advantage in a very inefficient market.”
Procter admits that the current rating environment is “tough” for ILS managers, and says that the firm has largely withdrawn from writing direct ex-US reinsurance as it believes such business is underpriced.
“All of that said, I would strongly argue [ILS] is still valuable relative to other asset classes. You can add value, comparing the merits of a portfolio with and without ILS.”