True or False: ILS has the potential to grow into a $1Trillion dollar asset class.

Ledger says it's true. What do you think??

Even in my short time at Ledger, I’ve met people who remembered this visionary presentation by Samir Shah at the SIFMA conference.

When I was interviewing for the position at Ledger, I was completely captivated by his thoughts on how the industry might evolve. I ran to my husband (also an actuary in Insurtech) and said “You have to watch this video”.?

Today, I see articles almost daily hypothesizing about the supply and demand for property catastrophe ILS. Ledger is helping shine a much larger flashlight on insurance risk to be securitized - casualty and non-cat property. So how do we grow the asset class to $1T??

Let’s take a look at the numbers for a second. If only 1% of global assets under management (AUM) invested in ILS, that would result in over a $1T asset class. 麦肯锡 estimates global AUM at $126T as of the end of 2021. That number is expected to climb, making $1T a reasonable estimate. The market opportunity is significant when you consider securitizing casualty and non-cat property.?

Changing the way the insurance industry finances risk has big, positive implications.

Ultimately, it means a larger, more diversified capital base, to support the sustainability of the insurance industry. This can allow for lower protection gaps and business innovation to improve society.?

We like to split out the industry into two:?

1. Servicing the risk: customer facing, dealing directly with the buyer and with all touchpoints with the person buying insurance (origination, underwriting, pricing, loss control, claims). This part of the market is fragmented and requires increased specialization and data.?
2. Warehousing the risk: provide capital/financing and finding the best capital partners.?

Today, insurers combine these two distinct functions. This can create inefficiencies, particularly in risk warehousing. The industry could be more efficient and effective if a material portion of the risk was warehoused in the capital markets (instead of enormous insurance company balance sheets), similar to what is done in banking/credit risk today.?

You can see this happening in the market already.

Ledger’s goal is to use technology to facilitate the transfer (or financing) of (re)insurance risk by linking the front-end and back-end of the “value chain” through standardized datasets and analytics.??

The key aspect to all deals managed by Ledger is that all parties have access to the same standardized datasets, and on a real-time basis so that portfolio trends can be analyzed at any point without performing a “data harvesting” exercise. As noted, Ledger has developed an automated data platform which both “standardizes” data sources/ feeds and produces a probabilistic return distribution. Ledger believes this will lead to commoditizing capital for pools of insurance risk.

Ledger’s focus on using technology to make the transfer of data more efficient has, to date, been performed largely in the context of transferring pure insurance risk to the ILS market. That said, the concept has broader implications for the industry. Further down the road, the concepts embedded in Ledger’s data platform could be applied in the transfer of information between traditional carriers and their reinsurance partners (foregoing the lagged bordereau process).?

The concept which Ledger is founded on is key to understanding how the global P/C (re)insurance market can become more efficient.

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