Recent developments in the reinsurance and ILS sector are enabling a surge of investor interest in longer-tailed risks, such as casualty lines, due to notable advances in risk management technology and innovation, according to Aditya Dutt, President of Aeolus Capital Management.Dutt was representing his firm, specialist insurance-linked securities (ILS) and reinsurance investment manager Aeolus Capital Management Ltd., during a recent AM Best hosted webinar that focused on the reinsurance renewals and market outlook.Traditionally, the unpredictable nature and duration of longer-tailed risks has kept many capital providers at bay.Now, however, the landscape appears to be changing.

During a point in the webinar, the subject of alternative reinsurance capital’s (so that deployed through insurance-linked securities and related collateralized structures) willingness to commit capacity to longer-tail risks was brought up, specifically regarding what Dutt sees as being major hurdles towards that.“I would say casualty sidecars in a manner of speaking, are some of the most popular new vehicles in the market.Maybe what I could say is why now? Why not five years ago? I think some of our competitors and fellow reinsurers in the market have spent some time perfecting the technology to get capital in and out of vehicles,” Dutt explained during the webinar.

He continued: “As you know, casualty long tail doesn’t mean finite in some occasions.It certainly also doesn’t mean a known length of the tail, it can also be an unknown long tail.Investors hate uncertainty and they hate surprises and some of these longer-tail lines have both.” “Reinsurers have spent some time coming up with technology that reduces uncertainty and reduces volatility.

I think once those hurdles are cleared, i.e., what do you do with a runoff portfolio, you have this ramp up period, and then you have a runoff period, and reinsurers and ILS managers are starting to figure out various ways to attack that problem and succeeding, and I think that’s what has led to some of the inflow of capital.” According to Dutt, these improvements, along with the ability for investors to secure leverage in the current favourable spread environment, are starting to pay off.“The thing that I think is the obvious encouragement for these investors is the asset leverage that they’re getting in a favourable interest rate and spread environment, and when you can lever your capital a couple of times, it’s obviously attractive to many of these investors.The most obvious example is actually life reinsurance but certainly, this is happening in non-life reinsurance as well.” As technologies and strategies to manage uncertainty and volatility continue to develop, it appears that the reinsurance and ILS industry expects further inflows of capital to be allocated into longer-tailed risks.

During the same webinar, .All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.