An opportunity for the insurance-linked securities markets arising out of emerging technologies was presented to reinsurance executives during a conference at the Hamilton Princess Hotel & Beach Club.

Christine Todd, the chief investment officer for Arch was discussing the need for diversification away from the concentration of artificial intelligence in the investment markets, during a wide-ranging presentation to ReWiRe, the first Women in Reinsurance conference.

After highlighting the ‘incestuous nature” of financing to pay for the advance of AI, she delved into the need for diversification away from that concentration.

With AI-related companies representing some 40 per cent of the market capitalisation of the S&P 500, AI was a dominant risk, she said.

She added: “And it’s 56 per cent of bond issuance. So the exposure, passive exposure to technology is massive, and it needs to be diversified away. In what better form than ILS?

“ILS is a great diversifier. It’s also quite attractive relative to other fixed-income type vehicles. So the spread over treasuries of ILS is generous, and the overall yield of ILS is greater than that of high-yield investment grade bonds.”

She said that with all of the infrastructure investment globally, there is even more need for protecting that investment, and the insurance industry was available to sensibly meet the need.

“Insurers need to step in,” she said. “And despite the massive amount of capital that's flowed into the insurance industry at record highs — $790-ish billion — we’re still under protected. There's still a protection gap on the life side and the P&C [property and casualty] side. It’s a broad spread protection gap.”

Ms Todd’s near-300-seat audience was mostly P&C executives, although quite a few were from the life sector. They were all women, mostly members of WiRe.

During a question-and-answer period, she opined that the markets had not yet been hit with a recession because of the “unbelievably resilient” consumer and the “wealth effect”.

She said: “The wealth effect is a result of this massive amount of liquidity sloshing around in the global system, which is still a hangover from Covid.

“The governments just pumped liquidity into the system, and we're still flushing it out. So the consumer benefits from housing prices, stock market prices, and is spending. Even consumers who don’t have a lot in stock markets, they’re still spending, too. It's amazing how resilient that is.

“So again, we are in a situation where we're not teetering on the edge of the recession.”

Ms Todd talked about the need for more communication between underwriters and investment managers with regard to AI, and more study of the AI leverage exposure in insurance and investment portfolios.

She noted: “There’s a lack of transparency and the data is hard to get granular on, to really understand those risks. So better data, better communication, better understanding of those overlapping risks is absolutely essential to preventing volatility of capital and preventing concentration of risk. I think we are in early stages and I haven’t seen anyone who's doing a great job of it.”