Millette has seen increasing activity in the cyber ILS space, he said in conversation with The Insurer TV.

“We may or may not see a 144A securitisation – I expect we will,” Millette said.

“What I [also] think will happen is investors will develop some careful, thoughtful approaches to collateralised reinsurance,” he added.

Millette, who led distribution for the first 144A catastrophe bond in 1996, said investors will be looking for further diversification and that cyber is one part of that.

“Investors will think hard about the results they’re getting from modelling firms – they will do research and there will be a slow and steady growth in 2023, in 2024, in 2025. But I think we should be patient,” he noted.

Millette’s remarks on appetite for cyber ILS echo those of Paul Schultz, CEO of Aon Securities.

Speaking to The Insurer TV during the Monte Carlo Rendez-Vous as part of #ReinsuranceMonth, Schultz said there were “probably 12 to 15 institutional investors that will look at cyber”, adding that the launch of a new cyber ILS market is around the corner.

The increasing frequency and severity of cyber attacks in recent years has driven demand as cedants look for (re)insurance capacity.


But at the same time, (re)insurers have been taking a cautious approach to deploying capital in this sector amid fears of losses created by new and more sophisticated cyber threats.

Investors will ponder the risks before they commit, and growth of the ILS cat market will take time, Millette reflected.

“This notion that all of a sudden something is going to blossom like a morning glory in the capital markets I think has always been a misplaced hope of reinsurance,” he added.

Looking beyond nat cat

During the same interview, Millette spoke of the ILS cat market’s “paradigm” breaking down following a period of sustained reinsurance losses from increased natural catastrophes, warning that trapped ILS capital as a result of such events will force investors to rethink their approach to nat cat investing and look beyond that risk.

“Let’s step back and think about ‘ABC’ – all but cat. It’s actually been a wonderful six-year period – for the most part – for capital markets investors in non-cat portions of the reinsurance world. They’ve outperformed cat, they’ve outperformed the capital markets,” enthused Millette.

According to Millette, investment opportunities have been particularly attractive across areas like run-off life, life sidecars, run-off and legacy casualty risk, as well as certain specialty P&C, services businesses, services roll-ups, services refinancings and financial lines.

The base of ILS investors that are interested in casualty, or longer-tailed P&C reinsurance risks, is expanding.

Of course, there has been a lot of discussion about expanding the ILS asset class into longer-tailed lines, or even into shorter-tailed specialty classes of reinsurance, and this has been a perennial topic of discussion for some years now.

But over the last two years there have been an increasing number of initiatives focused on casualty as an ILS line of business, as well as more broadly on non-catastrophe property and casualty business, that encompasses the shorter-end of the casualty class of risks.

“There’s about $100bn of capital from the capital markets in the cat complex, but if you look across run-off casualty, run-off life, specialty lines and services, there is actually similar, perhaps even a greater amount of capital markets capacity at work, having a different experience, a better experience and also a lightly correlated experience with the broader capital markets.

“We’re very focused on that and investors are going to focus increasingly on that,” he concluded.

In the latest 15-minute Close Quarter interview, Millette examines:

- ILS capital: what changes it will demand

- The impact of trapped capital

- 1.1 & 1.6: how they are connected

- 2023 retro market

- Prospects for a cyber 144A cat bond