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

This was the fifth session of Prospectus 2021, a new annual reinsurance and insurance-linked securities (ILS) conference brought to you by Artemis in collaboration with sister title Reinsurance News in November 2020. Focusing on the capital and investments side of both reinsurance and insurance-linked securities (ILS), the expert panellists discussed the impacts of the COVID-19 pandemic on the sector's capital raising abilities. They highlighted the new wave of capital going to both established entities, as well as to new startups across reinsurance. Greg Hagood, Co-Founder of Nephila Capital explained, "For the existing companies it’s interesting because obviously liquidity is abundant, capital’s flowing and there’s easy to access capital right now in the world. So, it seems to me that part of that capital raise is likely defensive; shoring up past reserves, shoring up the balance sheet; a lot of uncertainty around COVID. "So, part of that raise was probably defensive, and part of it is likely offensive." Also participating in the panel discussion were: Stephan Ruoff, Head of Schroder Secquaero; Henning Ludolphs, Managing Director, Retrocession & Capital Markets, Hannover Re; and John Butler, Managing Director, Cohen & Company. Butler of Cohen & Company highlighted that investors have been very supportive of insurance, reinsurance and ILS companies through the pandemic. While at the same time the opportunity to invest in re/insurance has become very attractive right now. "We see very attractive opportunities for investment moving forward, and I think our investors now feel that there is sufficient clarity to understand how this has been affected by the current situation and what the changes will be moving forward," Butler said. Ruoff of Schroder Secquaero explained that he sees capital flowing to more predictable insurance-linked securities (ILS) structures. "I think it comes down to what you call the alignment of interest, and the alignment of interest with the manager that’s the fiduciary of the money, or with the management team, or the capital providers and the management team when it comes to building new structures," Ruoff noted.

This was the fourth session of Prospectus 2021, a new annual reinsurance and insurance-linked securities (ILS) conference brought to you by Artemis in collaboration with sister title Reinsurance News in November 2020.  The session focused on terms and conditions (T&Cs) and explored both the loosening during the soft market period, and the expectation of continued tightening as the market enters 2021.  Strengthening terms of insurance and reinsurance, both to improve the clarity of coverage and precision of payouts when loss events occur, is seen as a key way to enhance the product and also the underwriting returns of companies in the sector.  During the panel, it was highlighted that in the ILS space there’s already been a focus on quota share terms, there’s been a toughening up on aggregates, and also a shift away from cascading coverages as market players look to secure more favourable T&Cs.  But while progress has clearly been made, is this enough or is there a lot more to do at the renewals?  The panel featured Heather Kitson, Deputy Chief Executive Officer (CEO) of Convex Re, Michael Millette, Founder & Managing Partner, Hudson Structured Capital Management and James Parker, Chief Claims Officer at AXIS Re.  The discussion covered the continuing shift to named peril coverage and how certain areas of the market were already ahead on this, such as catastrophe bonds.  It also covered the need for alignment between parties and how this can overcome terms confusion.  Both cyber risks and so-called intangible risks were also discussed, with the panel concluding that the industry needs to work on terms to contain these and other areas of insurance and reinsurance where difficult to predict losses may lie.

This was the third session of Prospectus 2021, a new annual reinsurance and insurance-linked securities (ILS) conference brought to you by Artemis in collaboration with sister title Reinsurance News in November 2020.  Attendees were treated to an expert panel focused on what really matters for Chief Investment Officers (CIOs) going into 2021.  It’s no secret that interest rates have been dangerously low for some time now, and with the lower for longer environment expected to persist for the foreseeable future, insurers and reinsurers are once again increasingly focused on underwriting discipline and profitability.  In light of the challenges on the asset side of the balance sheet, session moderator Van Hesser, Chief Strategist at Kroll Bond Rating Agency (KBRA), questioned panellists on the impact COVID-19 is having on the investment landscape, and whether the introduction of a global pandemic has led to any changes in the investment philosophy.  Panellists discussed the trends affecting insurance and reinsurance company investment strategies and what their CIO's need to consider as the market moves into 2021, still under the shadow of the pandemic, low rates and financial volatility.  Also participating in this session were: Vincent DeLucia, CIO, New England Asset Management, Inc.; Jason Pratt, Head of Insurance Fixed Income at Neuberger Berman; and Paul Norris, Managing Director, Head of Structured Products, Conning.

This was the second session of Prospectus 2021, a 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 session saw Dr. Jamie Rodney, Executive Director of ILS Analytics at ILS investment manager Twelve Capital, giving an in-depth and insightful keynote exploration of peak catastrophe perils and the climate factor, with a focus on hurricane risks.  The keynote delved deep into the work Twelve Capital has been doing to better understand hurricane risk and the potential influence of climate change, as well as the workings of catastrophe risk models with a view to the incorporation of climate factors.  This keynote presentation was delivered with slides, but the video unfortunately does not include them.  When it comes to understanding the uncertainty around the output of catastrophe models, Rodney suggested that different insurance, reinsurance and ILS industry players could benefit from working together more closely.  “I would actually argue that there needs to be more collaboration across the industry,” Rodney said during a Q&A session after his keynote.  “From a cat model perspective, working and collaborating with cat model vendors and having worked at a cat model vendor myself, there’s a lot of cutting edge science, there’s a lot of leading scientists working on this field.”

This was the opening panel session of Prospectus 2021, a new annual reinsurance and insurance-linked securities (ILS) conference brought to you by Artemis in collaboration with sister title Reinsurance News, in association with Kroll Bond Rating Agency (KBRA), panellists discussed the Covid-19 outlook for the re/insurance and ILS industry.  To start, Peter Giacone, Managing Director, Global Head of Insurance, KBRA, noted the very unique situation that the markets are in many months after the arrival of the global crisis.  “I think back to how we were looking at it and trying to grapple with the issues back in March and April. I think now, with the benefit of six months of hindsight, I think the industry has actually fared quite well. From a credit risk perspective, I think there was an awful lot of hand wringing that was going on at the time, there was a lot of concern around how assets and liabilities would behave,” said Giacone.  At KBRA, he continued, the firm tried to keep a very steady hand with regards to taking rating actions, which Giacone said has proven to be the correct course of action.  “I think the asset side of the balance sheet has sort of stabilised a little, obviously with quite a bit of volatility and uncertainty continuing. So, some of the short-term concern on that front, I think, has somewhat subsided, but we will obviously have new challenges, in terms of low interest rates,” he said.  Adding, “On the liability side, I think also, again, lots of uncertainty. But, some of the very large numbers that had been bantered around initially, which I think made sense at the time, certainly I think we’re at a point now where perhaps some of those are not where we’re going to land. And, so, I think that’s good news for the industry overall.”  The panel discussion also features David Flandro of HX, Linda Johnson of TigerRisk Partners and Joanna Syroka of Fermat Capital Management.

We spoke with Tom Johansmeyer, Head of PCS, today, to discuss the rioting and civil disturbance seen at the US Capitol buildings on January 6th 2021. While the rioting and disturbances seen yesterday won’t have any significant implications in terms of losses for the insurance and reinsurance industry, there is a lot to consider. Johansmeyer explained some of the backdrop to yesterday’s events, as so-called strike, riot and civil commotion (SRCC) risks have appeared elevated for more than a year. With a lot going on in the world right now, various pressures are building and potentially elevating SRCC risk, Johansmeyer explained. It’s a challenging risk to understand and evaluate, but one that has the potential to be increasingly impactful in financial terms as well, although it is still relatively rare that SRCC losses fall to the reinsurance or retrocession market. Johansmeyer also gave some colour on previous major insurance and reinsurance industry SRCC events, what to think about in the industry loss warranty (ILW) market and explained what industry participants should be thinking of going forwards.

Our latest podcast episode provides a review of the record levels of catastrophe bond and related insurance-linked securities (ILS) market issuance from the fourth-quarter and the full-year 2020. The catastrophe bond market broke records in 2020, with issuance reaching a new high of $11bn of property cat bonds, or $16.4bn if you include other classes of business and mortgage insurance-linked securities (ILS). Artemis tracked very one of the transactions and in this episode we explain some of the important details of Q4 and full-year 2020 catastrophe bond issuance, highlight some landmark deals and look ahead to 2021 for the ILS market. Market conditions look strong and the return potential from portfolios of cat bonds has risen for investors, as it has across the reinsurance linked investments space. Underscoring issuance records, were a number of new sponsors and interesting highlights, such as the first catastrophe bond from a tech-giant as Google parent Alphabet Inc. came to market twice. Alongside that, another first saw an asset manager using a cat bond to hedge earthquake risk from its portfolio, something we believe could herald further interest from asset owners and holders to leverage the ILS market to carve out and transfer climate, weather and catastrophe risks from their portfolios.

This podcast episode features an executive roundtable discussion we held in December 2020 that brought together industry participants to discuss key issues related to the insurance-linked security and catastrophe bond market’s readiness for and adoption of Environmental, Social and Governance (ESG) practices. This roundtable discussion sought to gain an understanding of the consequences of non-ESG compliance in insurance risk transfer; to identify starting points for improved compliance; alongside an exploration of the needs of the market and investors. After an overview of the status quo around the implementation of the ESG framework in the European Union (EU), the conversation shifted focus to the ILS space and specifically, whether or not ESG is being sufficiently considered in the market at this time. Industry experts noted that there is much more to do, on embedding ESG practices within insurance-linked securities (ILS) and catastrophe bonds. In particular, the ability to be truly transparent and show investors that portfolios of risk ceded to, or underlying, reinsurance and ILS transactions are ESG compliant remains a significant hurdle facing the market as it seeks to meet rapidly evolving investor motivations and needs.

Our latest podcast episode features an interview with Patrick Roder, Associate Partner and Global Head of ILS at Synpulse Management Consulting, who joined us recently to discuss the publication of a study analysing the results of our survey on the maturity of environmental, social, and governance (ESG) practices in the risk transfer, reinsurance and insurance-linked securities (ILS) markets.  Market participants across risk transfer, including insurance-linked securities (ILS) and reinsurance, have a lot to gain from further operationalising Environmental, Social and Governance (ESG) within their core businesses, the now published study reveals.  During the third-quarter of 2020, Artemis teamed up with boutique consulting firm Synpulse to conduct this survey on the maturity of ESG practices within the risk transfer, reinsurance and ILS markets.  During this interview, Roder explained why Environmental, Social and Governance (ESG) factors have become such a hot topic in risk transfer and why this is relevant to the insurance-linked securities (ILS) market as well.  "The concepts that stand behind ESG are not new at all. In fact sustainability is at the very heart of the risk transfer market.  "Some players might have had a more narrow definition of what that means, but others have pretty early on already had a broad definition and actually also been driving the definition of sustainability themselves," Roder said.  "So it's not like this subject has become suddenly a hot topic for the reinsurance and ILS market, but it has built up overtime," Roder continued.  "It's true that in ILS and reinsurance it has been a bit more recent compared to other parts of the financial industry, but that's probably just because the asset class of ILS and the underwriting side of the insurance and reinsurance industry is a bit more complex, when you look at the value chain, all the parts you have to look at. It's much more complex than analysing an equity investment.  "So I think the market needed some time, to build up this pressure and also the know how to put more focus on the topic of ESG."  The interview went on to discuss the inherent ESG qualities of reinsurance and ILS, but also why true ESG compatibility requires much more transparency and disclosure in the market chain.

After our last podcast on the importance of being good custodians of capital, thought it might be interesting to discuss the potential for recency bias among investors that are pouring capital into the market right now. In this episode we discuss whether the cycle is dead, changed for good, or whether some people have just forgotten recent history and may be making decisions based on the reinsurance renewals of the last year. Forgetting how the reinsurance market changes over the last decade to fifteen years could be a critical mistake and those bringing money into the market right now really need to be asking why now is the right time, how it's going to be used differently to be more effective and deliver better returns, and what the company they're funding plans to do to ensure these returns can be delivered sustainably and not just in a small window of opportunity.