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

Interest in parametric risk transfer and insurance is on the rise as the immediacy and availability of data improves and new types of market participants enter the fray, suggesting growth is on the horizon, according to industry experts. We recently held an Artemis Live webcast, titled The Power of Parametric Solutions for Climate Resilience, featuring senior leaders from across the weather risk management and re/insurance space who discussed the expanding parametrics industry. In partnership with the Weather Risk Management Association and supported by our kind sponsor Descartes Underwriting, this Artemis Live webcast featured Julian Roberts, Managing Director, Risk & Analytics, ‎Willis Towers Watson; Alain Lagesse, Director Group Risk Management, LVMH; Daniel Vetter, Head of North America, Descartes Underwriting; and David Whitehead, Co-CEO, Speedwell Weather. Today, parametric risk transfer adoption is accelerating apace, as more granular and abundant data, combined with technology and an increasing number of capacity providers looking to underwrite risk on a parametric basis, collide to heighten the availability of a growing parametric solution set. Against this backdrop, speakers explained that interest in parametric insurance and risk transfer is growing on the back of the availability of data. From the buyers side, Alain Lagesse, Director Group Risk Management, LVMH, highlighted three main reasons, or competitive advantages, that parametrics have over traditional insurance solutions.

James Vickers, Chairman of Willis Re International, part of the global reinsurance broking unit of Willis Towers Watson, joined us to discuss global reinsurance market conditions and opportunities.  In this interview, James Vickers discusses how Willis Re's reinsurance clients are finding market conditions in the context of some steady firming seen across recent renewal seasons.  We discussed global reinsurance capital levels and why, despite the industry being well-capitalised and having bounced back strongly from the pandemic, we continue to see positive rate momentum.  James explained some of the underlying features of reinsurance performance at this time, explaining the challenges that reinsurers face in a low interest rate world. As well as the need for underwriting returns to improve further, particularly when some reinsurers have new capital investors to satisfy at this time.  We also discussed the recent performance of the insurance-linked securities (ILS) market and James explained that he feels ILS funds and investors have learned a lot after some more challenging years, which he feels means the discipline being seen in ILS capital deployment is set to continue.  Finally, James shared his market outlook, saying that he sees no reason for firming rates not to continue at this time.

In this episode we review some of the key facts related to catastrophe bond and related insurance-linked securities (ILS) issuance in the first-quarter of 2021. Catastrophe bond and related ILS issuance amounted to $4.63bn as at the end of Q1, making it the third time in the past four years that Q1 issuance has surpassed the $4bn mark. Although down on the record-breaking $5bn issued in the opening quarter of last year, issuance still came in almost $2bn above the ten-year average for the period.  The impressive volume of new risk capital issued in the period came from 27 transactions comprised of 44 tranches of notes. Of this, a significant 22 transactions with a combined value of roughly $2.8bn covered catastrophe risks, which accounts for over 60% of issuance. Mortgage ILS issuance was also strong in the quarter, while the volume of private deals and non-cat ILS also increased year-on-year.  In 2021, the majority of first-quarter issuance came from repeat sponsors, including a mix of regular market participants and others returning for just their second or third time in the market’s history. First time sponsors this year included Universal (UPCIC) and the Danish Red Cross. 

For our latest Artemis Live interview we wanted to take a deep-dive into into the recent severe winter weather and deep freeze event that affected a significant proportion of the United States in February, hitting Texas particularly hard.  Early estimates suggested the potential for the insurance and reinsurance market, including insurance-linked securities (ILS) funds, to face losses of $15bn to $20bn.  Over the last couple of weeks estimates have been coming down slightly, as greater clarity on the losses emerged, particularly with some reporting from the major nationwide insurance carriers most exposed in Texas.  To help me dive deeper into the insurance claims environment related to this event, we invited two senior Verisk Analytics execs with years of experience on the claims-side of the market, Mike Fulton, President of Xactware and Tom Johansmeyer, Head of PCS to this interview.  The pair explained why the winter storm and freezing weather does not seem to be driving an insurance and reinsurance industry loss as high as early predictions had suggested.  But Fulton of Xactware also explained the scale of the claims deluge his firm's systems saw coming in, with huge numbers of claims seen flowing from Texas and the surrounding area.  Fulton said that a typical February might see around 400,000 claims in Xactware's systems from across the US, but in 2021 the company saw nearly a million claims assignments logged.  "More than half of those (claims) being from freezing weather and burst pipes," Fulton explained. "Roughly 30% of those 1 million claims, were due to what we believe to be freeze claims in Texas alone.  "So the impact when comparing to a normal year, for the personal lines market, was really significant."  We also discussed business interruption and the Johansmeyer of PCS said that the BI component of this winter storm loss hasn't manifested to the degree some feared, although some BI claims are anticipated.

This episode features a discussion exploring the use of technology within insurance and reinsurance markets, in particular how reinsurance outcomes can be improved for ceding companies with the use of tech.  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.  Panellists included Sean Bourgeois, Founder & CEO, Tremor Technologies, Inc., Claude Yoder, Head of Analytics, Lockton Re, and Carol Pierce, Senior Director, Insurance, Kroll Bond Rating Agency (KBRA).  The trio of industry specialists emphasised that while progress is being made, the industry’s ability to leverage advanced technology and analytics for improvements remains in its infancy, suggesting there’s much more to come.  Later in the session, the topic of standardisation was raised and specifically, whether heightened standardisation as a result of tech-driven risk transfer solutions means that eventually, we get to a point where capital markets investors can participate more readily.  Sean Bourgeois of Tremor explained the level of sophistication of many players in the insurance and reinsurance space and the distinct opportunity in making it easier for them to access capital, or allocate to risk, in its current as well as future perhaps more standardised forms.  Technology can do a lot for the reinsurance market in its current guise and suite of products, before even considering broader standardisation, he explained.

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.