- Rapidly evolving landscape: The increasing frequency and severity of global risks, ranging from global catastrophes to cyber security breaches, directly impacts the insurance industry’s capacity. The flexibility and efficiency that ILS offers will be instrumental in contributing to bridge the gap in insurance coverage, ensuring that a wider range of risks are addressed and communities globally are better protected against unforeseen events. This is leading to expansion of ILS into new markets and geographies such as Asia-Pacific, Latin America, as well as newer perils such as cyber risk and terrorism risk.
- Increased diversification: There is increased demand for alternative risk transfer solutions from insurers and reinsurers, as insurers seek to diversify their access to capital. Insurers and reinsurers have increasingly turned to the ILS market, as they continue to face higher capital requirements, lower profitability, and lower capacities. This increased demand is expected to lead to greater diversification of ILS products and structures, such as collateralised reinsurance, industry loss warranties, sidecars, parametric triggers and environmental, social and governance (“ESG”) criteria.
- Investor appetite: Where investors are looking for better opportunities to diversify traditional equity and interest rate risks, ILS offers investors uncorrelated exposures. The recent performance of the ILS market could influence investor appetites and present new challenges. As newer investors get more familiarised with the nuances of the markets, enhanced transparency and standardisation of ILS data and reporting can go a long way to improve investor confidence and market efficiency.
- Greater integration of AI and digital technology: Innovation and digitalisation of ILS platforms and processes, such as blockchain, smart contracts, artificial intelligence, and big data analytics. AI and InsurTech remain front and centre of newer capabilities for point solutions across the value chain to power transformation efforts. Innovative technology will facilitate the development of new ILS products and platforms, such as peer-to-peer insurance and microinsurance, which can cater to the needs of underserved segments and regions. Use of digital assets which have long remained on the sidelines are expected to enter in the mainstream insurance sector via ILS.
- Sustainability ambassador: The industry’s role is pivoting to that of a sustainability ambassador, influencing and propelling purpose-driven decisions and strategies of clients across industries. A prominent trend in recent years has been towards ESG and sustainable investments. Given the social benefits and resilience that insurance provides, there is a strong rationale for inclusion of ILS strategies in sustainability focused investment mandates.
- Regulatory boost: With more regulatory and tax clarity, harmonisation across jurisdictions to facilitate the growth and development of the ILS market. Enhanced regulation and standardisation of ILS markets, such as the EU Securitisation Regulation, the UK ILS Framework and the Bermuda ILS Regulatory Sandbox all are steps to bolster the attractiveness of ILS.
The ILS market is poised for another year of growth and exciting transformation in 2024, as it adapts to the changing risk landscape and investor expectations. The market will also face new opportunities and challenges, as it seeks to leverage technology, innovation, and regulation to enhance its value proposition and competitive edge.
About Apex Insurance Services
We offer full-service solutions to Insurance Linked Securities sponsors, funds, and insurance vehicles and managers. We provide a wide suite of technology solutions that enable seamless onboarding, administration, risk management, and investor reporting. Our aim is to provide greater transparency, reduce the complexities of using multiple suppliers, and improve efficiencies by delivering an agile and independent set of solutions from one place.
How can we help
Our single-source solution enables us to deliver an extensive range of services across the full value chain, to asset managers, capital markets, corporates and family offices. We have continually improved and evolved our capabilities to offer the broadest range of services in the industry; including capital raising and advisory services, fund services, Super ManCo services, digital banking, depositary, custody, corporate services, and a pioneering ESG Ratings and Advisory solution.
