When Bob Forness launched MultiStrat 12 years ago, the specialty reinsurance group looked to challenge the perception that ILS is shorthand for cat-ILS. Forness spotted the potential for the rapid growth of non-cat ILS early, noted MultiStrat CUO Kier James (pictured), and it’s great to see that the casualty and specialty reinsurance market is now getting wider recognition as it goes through a growth spurt.
“The casualty market alone is substantially larger than the property market, and so the potential for growth is huge,” James said. “I think we’re now at the point where there are enough investors and cedents who actually understand the product that there’s a real appetite for it, whereas, in the past, it has been pretty slow to get traction.”
The past few years have been something of a waiting game when it comes to waiting for the market to catch up on the opportunities presented by non-cat ILS, and so allow the full puzzle to start to come together. There are now more options in terms of both fronting carriers and exit solutions, he said, and cedents are now embracing the product more than ever – which is providing its moment in the limelight.
It’s a market segment ripe with opportunity and one being assisted by the rapid growth of the MGA market. There are now real opportunities to support these MGAs, James said, particularly as people have become more comfortable with the product which, in turn, has enabled MultiStrat to increase the number of lines it is looking to support.
In keeping with MultiStrat’s ambition to help shape the conversation about ILS, the business is looking to evolve understanding of non-cat ILS beyond the idea that this exclusively means casualty ILS.
“We’re not now necessarily restricted to the core casualty lines but we’re actually able to look at the specialty lines, which may have similar characteristics to the traditional cat and casualty markets,” James said. “As the market develops, and the products and the exit solutions evolve over time, it just means that our potential access to investors is set to broaden considerably over time as well. In terms of those exit solutions, most of our investors are quite happy with long durations and don’t necessarily need an exit but we understand that if you can have an exit solution it’s first going make you appeal more to your existing investors, but it also broadens the number of investors who can actually invest in that product.”
For many private funds there is a defined investment and harvest period, which limits the duration of the investments that can be entered into, so these evolutions in the underlying market ecosystem are enabling these to broaden their investment horizons. Meanwhile, looking at what’s happening with fronting carriers, James said that these are now becoming more flexible, which is facilitating alternative investment strategies. “It’s also interesting that a lot of our investors and asset managers are sitting on large private credit books.
“That can be difficult to sell as a proposition for potential collateral, but I think, over time, as the education process [around non-cat ILS] improves, that may open up opportunities too. There's a lot of work that the asset managers are themselves doing now to show that private credit can actually be very liquid. It can also be very stable and generate stable returns. It's not as high risk as perhaps people may believe initially when they look at it as there are various mechanisms and restrictions that can be utilised to improve both the liquidity and credit risk of these portfolios.” That shift will represent an interesting opportunity going forward, given the sheer amount of funds in private credit, which has enjoyed a significant boom.
Instrumental to the continued growth of the non-cat ILS – and particularly the specialty ILS – market is continued education around what building a healthy and sustainable marketplace looks like. There are a lot of new market entrants, James said, and the more people that enter the space, the more concerted the effort can be in educating investors about the scale of opportunity at hand. Touching on that scale and, given the lack of reporting around these figures, he said MultiStrat estimates that this market stands at the $3-4 billion AUM mark.
“I think that’s going to grow very rapidly, and I wouldn’t be surprised if it doubled by the end of this year,” he said. “And I think it will double again the following year. It’s one of those areas that, once people have got an understanding, it’s likely to just snowball. Because when you put it together, the non-cat market is far bigger than the cat market. The potential is huge, and if you get the same degree of penetration – and I can’t see the reason why you couldn’t – then naturally it’s going to multiply.”
