There is a growing trend of insurance vehicles such as insurance-linked securities (ILS) and catastrophe bonds tapping capital markets, according to a panel at the European Insurance Forum.
Due to low frequency/high impact events such as natural disasters needing a large amount of capital to cover risks, capital markets are becoming increasingly involved with ILS and cat bonds.
A key factor in forming such entities, according to the panel, is the utilisation of data. This is due to the need for transparency in assessing the risk of portfolio.
The panel suggested that more detailed cat models are the solution to this, as the current data is not good enough to predict losses or give accurate vulnerability analyses.
Despite this, the panel predicted that growth is inevitable, particularly with shorter-tail risks like acts of terror. This could bring the sector up to a value of $100 million within the next five years, according to one member of the panel.
