The next phase of ILS growth demands more than capital
Capital availability is no longer the primary challenge facing the reinsurance market. Instead, the focus is shifting towards how effectively that capital is deployed, particularly as competition increases and pricing comes under pressure.
For Cathal Carr, CEO of OAK Global, the opportunities lie in matching capital with risks that offer sustainable returns, rather than pursue growth in established markets at the expense of underwriting discipline. “Capital availability is not the challenge today. The bigger question is whether capital is being matched to risk and opportunity in a way that creates sustainable value over time,” Carr told Bermuda:Re+ILS ahead of ILS Bermuda Convergence, held October 12-14.
“The key is ensuring that capital follows underwriting quality rather than simply chasing premium volume.”
As market conditions become more competitive, Carr believes it is important to distinguish between businesses seeking growth primarily through price competition and those using underwriting expertise, data and technology to identify underserved risks.
Carr sees potential opportunities in emerging climate-related exposures, new technology risks and certain specialty classes, particularly where existing risk transfer solutions have yet to keep pace with an evolving risk landscape.
However, expanding into these areas requires a clear understanding of the underlying exposures and confidence that the returns adequately compensate capital providers for the risks assumed.
Carr pointed to OAK Horizon, which brings together underwriting insight, technology and flexible capital to develop solutions for evolving risks, as an example of this approach.
For investors, the distinction between growth driven by underwriting expertise and growth achieved through increasingly competitive pricing is particularly important as the market cycle evolves.
Previous soft markets have demonstrated how underwriting standards can deteriorate incrementally through changes to attachment points, terms and conditions, line sizes and portfolio construction, even before the consequences become apparent in overall performance. “The biggest lesson is that underwriting discipline is easiest to talk about and hardest to maintain when conditions become more competitive,” Carr said.
Expanding the investable universe
Beyond the immediate pressures of the market cycle, Carr sees considerable potential for third-party capital to support a wider range of insurance risks.
Property catastrophe has benefited from decades of modelling development, increasingly sophisticated data and an established understanding between investors and underwriters. Many specialty and emerging risk classes have yet to develop comparable foundations.
For these markets to attract alternative capital at scale, investors must be able to understand not only the risks themselves but also how those exposures could behave within their wider portfolios.
Advances in data science, analytics, AI and modelling could help close that gap, making previously difficult-to-quantify exposures more accessible to investors. “The opportunity is to identify where alternative capital genuinely has an advantage, then build the data, structures and transparency needed to make those markets scalable,” Carr explained.
He believes improvements in risk understanding will be particularly influential over the next three to five years, potentially enabling new approaches to underwriting and risk transfer. However, technology must complement, rather than replace, underwriting judgement.
The continued convergence of traditional and alternative capital could also support these developments, with reinsurers drawing on balance sheets, sidecars, collateralised structures and catastrophe bonds, according to the characteristics of the risks involved.
Carr emphasised that different forms of capital retain distinct advantages and should not be treated as interchangeable. Instead, he envisages increasingly complementary capital sources operating within broader frameworks that match investor requirements with underwriting opportunities.
“The future of insurance capital isn’t about traditional capital versus alternative capital. It’s about bringing the right capital to the right risks, supported by better data, better underwriting and stronger alignment between investors and risk carriers,” he said.
“The opportunity ahead is not simply to transfer risk more efficiently, but to expand the universe of risks that can attract capital in the first place.”
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