Redefining ILS - Expanding to Life and P&C - CEO & Co-founder Yaniv Bertele
Investors who believe that they are familiar with the insurance-linked securities (ILS) asset class are invited to take a fresh look today. The rapid pace of innovation in this space over the past few years has opened up a much wider range of investment opportunities than were possible in the past, and more developments are set to come in 2023. Vesttoo are at the leading-edge of innovation in this space, and the core concept of redefining ILS provided the central theme of our recent industry summit held in New York.
This inaugural conference – the first of a series to be staged in 2023 and beyond – brought together a diverse range of industry experts from both the insurance and the capital markets to discuss and debate the expansion of ILS into a wider range of lines of business in the Life and P&C insurance sectors.
The summit was opened by Vesttoo CEO and co-founder Yaniv Bertele, whose talk situated Vesttoo’s unique value proposition to investors and outlined why the opportunities available today represent such an important advance on what was possible ten years ago.
Bertele began by summarizing why now is the right time to build on the successes accumulated by the ILS pioneers over the past two decades. What was once perceived as an esoteric and overly complex investment structure that sat on top of opaque and hard to model risks has now been adapted to securitize much more regular and predictable risks and their associated cash flows.
In essence, the expansion of ILS to cover not only natural catastrophe risk, but now also more stable and forecastable risks linked to non-volatile insurance lines means ILS can now offer so much more to a much wider pool of investors. Whilst this is possible because of the impressive achievements made by ILS providers focused on natural catastrophe risk, what Vesttoo can bring to the capital markets today can be classed as a novel take on the asset class, hence the theme of this series of summits being the redefining of ILS.
The circa 17% CAGR of the overall ILS asset class over the past 20 years is ample evidence of the generic potential of ILS; taking it to the next level in 2023 and beyond will inevitably require the expansion and further development of ILS into other insurance lines such as P&C and Life insurance where further reinsurance capacity is strong demand.
More details on exactly why these non-catastrophe insurance lines offer such interesting investment possibilities can be found in the linked talk, as well as other recordings from the conference coming soon, the salient points are that these lines of business are characterized by low severity, high frequency claims for which there is a vast trove of historical data available on which to build and train machine learning, data-driven risk models. This stands in stark contrast to natural catastrophe risk, where events triggering insured losses are high severity, low frequency. Ultimately, climate risk remains unpredictable and extremely complex to model.
Therefore whilst ILS was always able to deliver low correlation, diversifying assets that act like fixed income, the replacement of catastrophe risk by non-volatile insurance risks (e.g. auto, home, or life insurance) makes Vesttoo’s ILS offering a genuine reimagining of the asset class and its potential. Improvements in how insurance risk is sourced and structured mean that bespoke portfolios can be designed where diversification is possible both across perils and geographies, and moreover such instruments are free from both credit or counterparty risk.
Vesttoo’s proprietary machine-learning technology has been key to making these advances possible, and more on this can be heard in subsequent talks to be released shortly. Bertele ended his opening remarks by outlining the marketplace vision that drives Vesttoo; the company's ultimate goal is to become the first fully liquid trading venue for insurance risk capable of efficiently connecting insurers and other cedents directly to capital markets investors in search of diversification and yield enhancement.
