Evolution is critical to the continued success of capital market solutions, says Pierre Ozendo

We haven’t touched the surface of future capital market products but evolution is vital to their survival, according to Pierre Ozendo, chairman and CEO of Swiss Re America.

“Insurance risk is a highly valuable asset class that, by its un-correlated nature, is extremely attractive to investors,” Ozendo said.

“But products must continue to evolve to retain the investor interest. A lot depends on the financial markets and how they adapt to the changing economic environment.”

Ozendo, speaking at the Property Casualty Insurers Association of America (PCI) annual conference in Boston, warned that investor demand for securitised products was currently outstripping supply.

“Over time I think the convergence with the capital markets will help to mitigate peak areas

Pierre Ozendo

“The retro market is the victim here and we need to be careful. The industry needs to develop more products to meet this unprecedented demand. If this can be achieved then over time I think the convergence with the capital markets will help to mitigate peak areas.”

Ozendo also predicted that sidecars would continue to be sidelined as other more attractive solutions found favour within the markets, although he did not rule out a return.

“The time of sidecars promising 30% returns on the back of nat cats is over – it’s too short-term a play,” he said.

“I think we will see the return of sidecars but in a different form and carrying different risks. At the end of the day the markets will dictate how this happens but the most important thing is that we should not fear volatility – we should embrace it.”

“The time of sidecars promising 30% returns on the back of nat cats is over – it’s too short-term a play

Pierre Ozendo

Commenting on Barney Frank’s speech yesterday where the Congressman indicated his desire for a move towards either a national cat bond or state reinsurer solution, Ozendo said that national cat bonds were much more preferable than a state reinsurer solution.

“The Florida Hurricane Catastrophe Fund was a good intention but will not have a good outcome. The governor is expecting the people of Florida to pay for the risks and that doesn’t make economic sense. They are basically mortgaging their children’s future.”

He said that cat bonds were a “more credible option” and if used properly, they could “accelerate demand and harness knowledge.”

“They are, in my opinion, by far and away the more preferable option.”