Casualty insurance-linked securities (ILS) firm MultiStrat’s recent capital investment serves as a key example of how the organisation is broadening its reach to serve more investors, and explore longer-term capital relationships, Bob Forness, Chief Executive Officer of MultiStrat told Artemis in an interview.
The firm recently signed a definitive agreement with an unnamed asset manager to provide underwriting and liability management services for a casualty reinsurance-focused reinsurer, while Deutsche Bank Securities Inc. acted as the structuring and placement agent on the transaction.
Speaking with Artemis at the RVS in Monte Carlo, Forness explained how the recent investment strengthens MultiStrat’s competitive position in the current market environment.
“MultiStrat has shifted over time to focus from ‘ad hoc’ to committed capital, and so the more we can work with investors to create funds to deploy in diversified underwriting strategies, the better it is for MultiStrat’s growth plans,” Forness explained.
“In our recent announcement, we are engaging investment banking expertise to broaden the number of investors we can reach, and to consider different ways to access capital on a more, long-term relationship basis.
“On the capital side, the Deutsche Bank transaction is an example of broadening our reach to serve more investors.”
As the insurance-linked securities (ILS) market continues to evolve, one of the most significant emerging areas is casualty ILS. With this, we asked Forness to share what he believes are the biggest challenges and opportunities currently within that space.
“Essentially, MultiStrat was one of the earliest founders of casualty ILS, and we’ve been doing it now for 12 years, at a time when no one really believed it was possible to take long duration liabilities and move them into the capital markets.
“So, we’re pleased to say that we’re excited to see the growth of casualty ILS, and we continue to innovate and develop opportunities within the market,” Forness said.
The CEO also noted that he thinks the casualty premium insurance market in general has been relatively disciplined.
He also stressed that pricing and terms vary across business classes, with some, such as commercial auto, presenting challenges, while others remain stable.
“The biggest challenge for casualty underwriting is always the same. Whether it’s ILS or traditional capacities, discipline, analytical underwriting – the question of how to price a product today and pay claim that develop over a very long period of time. And with economic and social inflation being the primary challenges, you need to address them in a multi-faceted way,” Forness said.
“You need deep underwriting expertise, market access, and relationships, to deliver profitable casualty reinsurance business through risk selection, structure, pricing, alignment, geographic selection, proactive claims strategies, portfolio diversification, contract wordings, strong legal counsel and much more.
“When you then place the business as casualty ILS, you need to deliver a transparent, attractive product while educating investors on capital, collateral design, investment guidelines, and the risks and returns from medium to longer duration liabilities that can develop over time. So, our challenge, collectively as an industry, is to educate investors while making our products simpler and easier to embrace as an alternative asset investment,” Forness added.
Later on, as the discussion turned towards alternative capital, Forness offered an interesting perspective, as he suggests that the industry may want to rethink how it describes ‘alternative’ or ‘third-party capital’.
“Over more than 20 years, alternative capital in the cat bond ILS space emerged and grew to represent a substantial share of the property catastrophe market. We may want to revise how we describe ‘alternative’ or ‘third party capital.’”
The CEO continued: “Asset managers investing capital into bonds or preference shares in reinsurance segregated account vehicles that take reinsurance risk, as compared with equity investments in traditional balance sheet companies, is really “direct capital.” I believe direct capital is a better descriptor and more appealing to investors who may not appreciate being referred to as ‘alternative’ or ‘third party.’”
However, Forness also forecasts for a substantial amount of ILS capital to find its way into the broader casualty space in the next few years.
“As investors receive attractive returns through diversified portfolios, premium leverage, investment flexibility, collateral design, and exit options, more direct capital will find its way to our market. From three or four billion now, we anticipate two or three times this amount in the next two three years,” the CEO explained.
To end, Forness provided Artemis with an overview of what MultiStrat’s main priorities and areas of focus are going to be for the next several years.
“Our focus has always been enhancing our underwriting, talent, and data driven, analytical, technology infrastructure to deliver attractive custom liability portfolios and servicing for investors.
“We continue to hire great new members of our team, and you’ll see that in the recent announcement with a new Chief Operating Officer and a head of strategy, initiatives and change.
“Our main priorities remain – to be disciplined underwriters, learning from experience, to deliver for investor clients. Talent, committed capital, advanced infrastructure, and strong relationships with cedents, brokers, carriers and investors will allow us to continue building on our advantages as a founder and leading innovator of Casualty ILS investments,” Forness concluded.
Read all of our interviews with ILS market and reinsurance sector professionals here.
