Stephan Ruoff, Co-Head of Private Debt and Credit Alternatives and Chairman of Insurance Linked Securities at Schroders Capital, sat down with Giovanni Amodeo for an in-depth fireside chat on the trends shaping the Insurance-Linked Securities (ILS) market.

Background and Role at Schroders Capital

Ruoff, a chemical engineer by training, began his career in the oil refining industry before transitioning to the insurance and reinsurance world, where he spent over 20 years. In 2019, he integrated Schroders Capital, where he now oversees Private Debt and Credit Alternatives, including ILS.

History of ILS and Schroders Capital’s Involvement

ILS, a credit alternative that provides a bespoke offering for investors, has been around since 2007. Schroders Capital acquired a minority stake in the business in 2013, increasing its participation in 2015, and eventually acquiring 100% of the business in 2019. Today, Schroders Capital is a top-five manager in the ILS space.

Cycles in ILS

Ruoff observed that the ILS market follows insurance and reinsurance cycles, which occur every 10 to 15 years. He highlighted three significant cycles: 1992 (Hurricane Andrew), 2001 (World Trade Center events), and 2011 (Tohoku earthquake in Japan). The current cycle, marked by benign years for insurers and reinsurers, has led to increased pricing and risk transfer.

Signals of a Peak Cycle

Ruoff identified the peak of the cycle by risk transfer pricing and the industry’s reset and increased pricing. He noted that the ILS market has come back slightly from its peak, but remains attractive, with risk spreads paid for risk transfer.

Evolution of the Ecosystem

Ruoff discussed the changes in the ILS ecosystem, including increased investor interest, growth in catastrophe bond issuance, and the blurring of public and private debt. He emphasized the importance of education within the investor community, which has evolved to better understand ILS as a credit alternative.

Portfolio Construction and Investor Interactions

Ruoff explained that investors increasingly seek bespoke mandates, and Schroders Capital offers both customized and off-the-shelf portfolios. He highlighted the importance of understanding risk, including climate change, and the firm’s scientific approach to catastrophe modeling.

Differentiation and Key Strengths

Ruoff identified Schroders Capital’s strengths in understanding risk, origination capabilities, and scientific approach to catastrophe modeling as key differentiators. He emphasized the importance of data analysts and scientists in driving investment performance and staying ahead in the industry.

Future of ILS and Climate Change

Ruoff discussed the proactive approach needed to address climate change, including collaborations with universities and government entities. He highlighted the importance of marrying climate change predictions with government reactions and the need for a converged approach between capital markets and governments.

Advantages of Being Part of a Larger Asset Management Firm

Ruoff emphasized the benefits of being part of Schroders Capital, including credibility, technology, and compliance advantages.

Growth Prospects for ILS

Ruoff predicted a compound annual growth rate of 8-10% for ILS over the next four to five years, reaching a $65-70 billion investment universe.

Advice to Young Students

Ruoff encouraged students to follow their passion and pursue scientific fields, such as climate science and meteorology, to contribute to addressing climate change.

Key timestamps:

00:09 Introduction to the Fireside Charts
01:26 History of ILS at Schroders
02:40 Understanding ILS Cycles
04:22 Identifying the Peak of the Cycle
05:31 Evolution of the ILS Ecosystem
08:02 Future Trends in Private Debt and ILS
10:12 Investor Education and Engagement
13:24 Emerging Investor Groups in ILS
15:01 Differentiation Among ILS Managers
18:30 Future Workforce Needs in ILS
20:29 Proactive Investment Strategies
22:15 Government Involvement in Catastrophe Bonds
24:10 Advantages of Institutional Asset Management
25:59 Growth Projections for the ILS Market
26:56 Career Advice for Future Generations