Paul Schultz, Aon Benefield

World Risk and Insurance News speaks with Paul Schultz, President of AonBenfield Securities, about current trends in the insurance linked securities and Cat Bond market, as well as the evolving role of the reinsurance broker in executing these deals. According to Mr. Schultz, “2014 was a big year for Cat bonds and collateralized reinsurance.” There were a couple of very large transactions last year, which may not occur again in 2015. If the industry stays flat this year, Aon Benfield would see that as significant growth. He says low-interest rates have enabled the growth in the ILS market over the past several years. “We saw a decoupling of the way the industry prices itself…moving away from the way the traditional market process risk, and more to the way investors compare returns against alternative asset classes.Mr. Schultz says Aon Benfield is agnostic when it looks at all options for risk transfer solutions on behalf of its clients. He says the pricing for each solution can depend on the type of risk or where the solutions fit into the tower of risk. He says clients are benefiting from markets competing against each other.

Over the next few years, Mr. Schultz sees the influx of capital having a major impact on the market.   He believes there will be consolidation in the market as a result. Rather than seeing alternative capital as a threat, he also sees the market embracing it in order to develop new solutions for clients. “We’ve moved from a defensive/threat conversation to an opportunity discussion….to drive growth in the market.”

The role of the broker is evolving along with the market. “As we see consolidation…as we see new types of capital enter the market, the broker has to change.“ All parties to the transfer of risk must add value to the transaction; otherwise, we will see “capital jumping the chain.” Reinsurance brokers must assume the role of a trusted advisor to bring all potential solutions to the client.

For more from SIFMA’s ILRS Conference, visit the On Demand Library.

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