NEW VESTTOO RESEARCH: Low Volatility Asset Class Projected to Jump to $120 Billion by 2027
TEL AVIV, Israel, May 31st, 2023 – Vesttoo, a pioneering insurance risk transfer and investment platform, today released new research showing that the non-catastrophe Insurance-linked Securities (ILS) market, an alternative investment class with low correlation to the broader financial markets, is projected to double in size by 2027, while the entire non-CAT reinsurance market is set to reach $120 Bn. The new findings, included in Vesttoo’s first Risk Capital Report, point to a rapid growth in the alternative investment class as major institutions seek market uncorrelated, low volatility assets.
The growing non-CAT ILS market includes insurance lines based on Property & Casualty (P&C), Specialty and Life - in short, any form of insurance liability distinct from natural catastrophe risk. These lines of business are characterized by large datasets of high frequency and low volatility claims patterns, enabling higher-confidence risk modelling and expected returns.
“This new research confirms what we’re seeing on the ground in markets across the globe: institutional investors are increasingly seeking out low-volatility, market uncorrelated asset classes. Non-catastrophe insurance linked securities provide exactly that,” said Yaniv Bertele, CEO of Vesttoo. “The simple reality is: insurers are struggling to obtain reinsurance coverage. They need a major injection of new capital. This is the opportunity for Vesttoo: to connect investors with cedents to drive attractive, risk-adjusted returns.”
The projected jump in interest in non-CAT ILS comes at one of the most-challenging renewal periods for the reinsurance industry in decades. In fact, year-on-year pricing of January 1 renewals increased by the largest amount since Hurricane Andrew over thirty years ago. At the same time, dedicated reinsurance balance sheet capital declined 16 percent last year, failing to keep pace with the annual growth of the market, according to Vesttoo’s report.
· Non-catastrophe ILS market is projected to double in size by 2027, while the entire non-CAT reinsurance market is set to reach $120 Bn.
· Cedents are welcoming alternative capital, with the industry experiencing the biggest year-on-year pricing increase for renewals since Hurricane Andrew over thirty years ago.
· Q1 2023 saw one of the most-challenging renewal periods for the reinsurance industry in decades, with reduced capacity and higher prices.
· Non-CAT ILS continues to demonstrate lower volatility and attractive risk-adjusted returns, with greater Sharpe ratios than CAT-bonds, high-yield bonds and equities while having in-line projected returns.
This publication is the first in what will be a regular series of quarterly reports. The publication shines a spotlight on Vesttoo’s market analysis, which in Q1 tackled the question of how inflation affected ILS.
For more information, please download the report here.
Vesttoo connects the insurance industry with the capital markets by combining AI-powered technology with expertise in data science, insurance, and finance. We provide insurers with the capacity they need and investors with opportunities to diversify with uncorrelated, low volatility insurance-linked assets. Among the company’s partners are well-established global insurers, financial institutions, and large multinational brokers. Securities products and services in the United States are offered through a registered broker-dealer. For more information, visit https://vesttoo.com.