Artemis Live - Insurance-linked securities (ILS), catastrophe bonds (cat bonds), reinsurance

For our latest Artemis Live video interview we spoke with specialist insurance-linked securities (ILS) fund manager Leadenhall Capital Partners' CEO Luca Albertini and CUO Jillian Williams, who gave us an update on their view on the ILS and reinsurance market and also explained more about environmental, social and governance (ESG) activities at the firm.  We began by discussing the state of the market and Chief Executive Officer of Leadenhall Luca Albertini explained that, in January, property catastrophe pricing improved and importantly, so too did terms.  Albertini also highlighted the life ILS side, where his firm provides reinsurance and financing capital to life insurers and reinsurers, saying that there could be an opportunity emerging here related to the COVID-19 pandemic.  "We believe that there will be a higher interest in pandemic cover and life cover in general, so something that can be structured to meet this additional appetite is something clearly we are working on and the industry is working on," Albertini explained.  He cited the "potential for rekindling interest on a sector like pandemic," which he said for capital market players has been in slow decline.  Williams discussed the upcoming reinsurance renewals, saying that, "The 1/4's have been positive and the Japanese renewals have again shown a positive discussion on rate and good interaction between clients and brokers on structures and what they need for them, as well as what we're able to do in the market."  However, Williams noted that looking ahead to the mid-year renewals, the recent winter storm Uri has focused attention on so-called secondary perils again and has also heightened uncertainty around reinsurance renewal timings.  The interview went on to explore environmental, social and governance (ESG) activities at Leadenhall Capital Partners and the pairs thoughts on what more the ILS industry needs to do so it can ensure it is ready to capitalise on investor preference and demand.

For our latest Artemis Live interview we spoke with James Poole, Co-founder and Managing Directory of AGILE Risk Partners, who explained the concept of Collateralised Facultative Reinsurance (CFR) to our viewers.  James and his business partners launched AGILE as a pure risk advisory, bringing broking expertise, and an understanding of insurer and reinsurer capital pressures together with technology to try and deliver a lower cost-of-risk for their clients.  Recently, AGILE has secured risk capital from hedge fund investors amounting to $250 million and is now looking to secure opportunities to deploy that capital on a collateralised basis into what they are terming “special reinsurance situations.”  With a maximum of $30m deployable into any single opportunity, the AGILE team hopes to build a diversified portfolio of really interesting risk opportunities for its investors, while helping cedents to reduce their cost-of-risk.  James explained AGILE's thinking around the concept of Collateralised Facultative Reinsurance (CFR) and why he thinks that's the next big thing and a relatively untapped opportunity for insurance-linked investors.

Tom Johansmeyer, Head of PCS, gave a keynote speech titled "The Four Horsemen of 2021 (key reinsurance risks that won't go away)". This was a session from our Prospectus 2021 event, the new annual reinsurance and insurance-linked securities (ILS) conference brought to you by Artemis in collaboration with sister title Reinsurance News in November 2020. Johansmeyer used the Four Horsemen to underline what he saw as the  greatest challenges for the insurance and reinsurance industry in 2021. The COVID-19 coronavirus pandemic was top of the four risks likely to impact insurers and reinsurers in 2021, followed by the potential for civil unrest and Strikes, Riots and Civil Commotion (SRCC). After that, Johansmeyer saw cyber risk as the third largest risk to insurance and reinsurance markets for 2021. The fourth horseman though was natural catastrophe and severe weather risk, which quickly became true with the US winter storms in February 2021. Key though, for insurance and reinsurance markets in 2021, would be generating returns. "How you generate returns may be different relative to the amount of capital you’re deploying, that will depend on the rate environment, of course. And, you could have some issues around choosing what makes sense. Some classes of business that looked good before, may not now. Some classes of business that you desperately wanted to leave until now, but for reasons of momentum or other forms of commitment you haven’t, this may be the opportunity," Johansmeyer explained.

This was another session from Prospectus 2021, the new annual reinsurance and insurance-linked securities (ILS) conference brought to you by Artemis in collaboration with sister title Reinsurance News in November 2020. This panel discussion saw us joined by some real experts in their fields of catastrophe risk and meteorological perils, to discuss the issue of secondary perils and climate change related risks. Participating were Kelly Hereid, Director, Catastrophe R&D, Liberty Mutual Insurance; Steve Bowen, Director & Meteorologist, Head of Catastrophe Insight, Aon; and Andreas Weigel, Weather Perils Lead, Swiss Re. Our expert speakers discussed the increasing impacts to insurers, reinsurers and ILS capital from so-called secondary perils, explaining some of the science behind this, what trends are being seen, if or how climate risk plays a role and what this means for underwriting strategies going forwards. The discussion covered the increasing contributor to catastrophe losses for the insurance, reinsurance and insurance-linked securities (ILS) industry that secondary perils have become, as well as the potential climate links to this rising cost burden.

Chamath Palihapitiya and David Soloff, founders of new startup OTT Risk, joined us to discuss their ambitions of unlocking private capital to support the non-damage business interruption insurance market.  With the theme of our ILS NYC 2021 event being "defining the next-generation" of insurance-linked securities (ILS), the recent launch of a new tech start-up focused on the insurance sector named OTT Risk closely aligned with our thinking on the future of this marketplace.  OTT Risk wants to tackle the massive societal issue around availability of insurance capacity for non-damage business interruption, something that has come to a head with the pandemic in the last year.  OTT Risk aims to enhance the economic resilience of the world’s businesses, by filling business interruption coverage gaps using advanced technology such as machine learning and by leveraging insurance-linked securities (ILS) structures to connect this emerging risk class with capital market investors.  So we were delighted to welcome founders David Soloff and Chamath Palihapitiya (of Social Capital fame) to learn more about their company and its mission.

For this broadcast, three specialist reinsurance and insurance-linked securities (ILS) focused Partners from global law firm Mayer Brown joined us as part of our virtual ILS NYC 2021 conference.  Steve Rooney, Ricky Spitzer and Colin Scagell, all of who work on numerous insurance-linked securities (ILS) and collateralised reinsurance transactions and structures, shared their thoughts on the future of the ILS market with us.  We discussed the important role of legal structuring within the ILS market, as well as how that may evolve over the coming years and how structures can promote innovation in the marketplace.  The group also explained where they see the potential for future ILS market expansion and growth, as well as the importance of ensuring both cedents and investors are well-protected by robust structures and legal documentation.

Rowan Douglas, Head of the Climate and Resilience Hub at Willis Towers Watson joined us as part of our ILS NYC 2021 virtual conference, providing an update on his important work at the intersection of climate science, capital, policy and risk. Rowan explained the importance of access to deep capital in financing for protection against climate risk and increasing climate resilience.  Having spoken at our first ever ILS NYC conference five years ago, Rowan highlighted the need for industry engagement on climate matters.  He gave us his updated thoughts on the important role of the capital markets in financing support for the closure of climate protection gaps.  Alongside insurance and reinsurance, Rowan sees an important place that the insurance-linked securities (ILS) market can participate in helping the world become more resilient to climate risks. The conversation also discussed the important topic of credit and how embedding climate into broader global financial credit decisions could be a tipping point for the need for climate risk transfer capital.

Tom Johansmeyer, Head of PCS, a Verisk business, joined us for a second interview during our ILS NYC 2021 virtual conference, this time to discuss the effects of the ongoing COVID-19 coronavirus pandemic on the reinsurance and insurance-linked securities market.  The discussion focused on the ongoing COVID-19 pandemic and what its continuation means for insurance-linked securities (ILS) and reinsurance markets.  We also spoke about how long the tail of the pandemic could prove to be, particularly in longer-tailed lines of insurance and when the industry may have greater visibility of the eventual industry-loss total, across insurance, reinsurance and insurance-linked security (ILS) markets.  The topic of hedging also came up and we talked about how important it may be for insurance and reinsurance firms to find ways to protect themselves against future pandemic losses, as COVID-19 impacts continue across the world.

Michael Bennett, Head of Derivatives & Structured Finance at the World Bank Treasury kindly joined us for an interview as part of our virtual ILS NYC 2021 conference.  He shared his thoughts on the World Bank's work in disaster risk financing and the use of insurance-linked securities (ILS) structures, such as catastrophe bonds, alongside traditional reinsurance, to help its member countries enhance their resilience.  We discussed his views on where the World Bank's use of insurance-linked securities (ILS) may evolve towards in the future.  This included how the catastrophe bond fits into disaster and other forms of risk financing, what has gone well and what the insurance-linked securities (ILS) market could perhaps do differently to support the expansion of this work.  Michael also explained what he believes needs to happen for uptake of sovereign ILS and catastrophe bonds to increase, as well as where more issuance could come from.

Marcus Rivaldi, Managing Director, Analytics at specialist ILS and reinsurance investment manager Twelve Capital, joined us to explore environmental, social and governance (ESG) practices in the insurance-linked securities (ILS) market, as part of our ILS NYC 2021 virtual conference.  We spoke about ESG (environmental, social, governance) and what the insurance-linked securities (ILS) sector needs to consider moving forwards.  Discussing some of the important issues that need to be addressed to ensure the ILS asset class can meet the demands of investors for ESG compatible returns.  Marcus also explained that the already large environmental, social and governance (ESG) investor community is poised to expand further, but in order for the insurance-linked securities (ILS) sector to really take advantage of the opportunity it needs to address certain challenges. Rivaldi highlighted inconsistency across the insurance and reinsurance balance sheet, with carriers being more eager to disclose information on the asset side of the balance sheet, but not so willing on the liability side. Furthermore, geographical inconsistency is also a hindrance, he added. Of course, it’s also going to be critical for the market to really demonstrate the understanding and management of environmental-type risks, which raises the climate factor and the capabilities of modelling for certain exposures.