ILS terrorism bonds “logical next step”

The terrorism protection gap is now larger than ever and expanding all the time, underlining the need for innovative and effective solutions, with the insurance-linked securities (ILS) space a logical evolution, says Pool Re chief executive officer (CEO), Julian Enoizi.

Enoizi addressed an audience in London recently at an ILS industry event, saying that the terrorism marketplace should embrace the ILS sector’s features and capacity.

The nature of the targets has changed, explained Enoizi, and motivations have been seen to move from nationalist to fundamentalist.

Owing to the unpredictability of terror events around the globe the terrorism sector has always been a very challenging area for the insurance industry but, as the landscape has evolved and the protection gap broadened, so has the appetite amongst the risk transfer landscape to assume terrorism risk.

“Models are not yet sufficiently credible to support a bond issue, which makes pricing a real challenge. Investment in expert analysis and partnerships with academia are helping us to understand the risk better, and to model it more reliably. It is critical to realise the shortcomings of whatever models are produced, but this difficulty does not negate the potential for a terrorism bond. We simply have to think creatively,” continued Enoizi.