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

In this episode we thought it would be interesting to discuss Florida market reinsurance renewal conditions, through the lens of our vantage point as analysts of the insurance-linked securities (ILS) and catastrophe bond market. The Florida focused June 1st 2020 reinsurance renewal is fast approaching and using the ILS and cat bond market as a benchmark, it's clear that pricing and renewal rates are rising, in some quarters significantly. We run through some of the reasons for this, looking back at market conditions across recent year's, as well as how transactions in the insurance-linked securities (ILS) market (specifically catastrophe bonds) provide a sign of the direction and rate of increase being seen in Florida reinsurance rates.

David Flandro of Hyperion X, the data and analytics focused unit of the Hyperion Insurance Group, joined us for a discussion on the insurance and reinsurance market impacts of the Covid-19 coronavirus pandemic. David told us that, "There seems to be pretty healthy investment appetite for alternative capital products, even products that are non-cyclical rather than non-correlative."  He explained that investors continue to look at reinsurance and ILS as a fairly small proportion of overall pension fund, sovereign wealth fund and other investor assets.  "I don't think this has diminished appetite for ILS very much at all," he said of the pandemic.  "We are getting new investors who are looking for non-correlative assets that are relatively high-yielding, in sectors where rates are going up... and that is what we've been seeing in the reinsurance market."

We were delighted to speak with Paul Schultz, CEO of Aon Securities, the specialist capital markets and insurance-linked securities (ILS) focused division of insurance and reinsurance broker Aon.  Paul discussed the state of the catastrophe bond market, broader cat bond and insurance-linked securities (ILS) market trends, as well as the impacts of the Covid-19 coronavirus pandemic across insurance, reinsurance and risk transfer markets.  He explained that the cat bond and ILS industry has previously shown resilience in time of crisis and this time is no different.  “Both from a cedent perspective and from an investor perspective, I think everyone is being constructive in a period of great dislocation and uncertainty,” Schultz explained.  He highlighted the fact that even in this time of dislocation, the primary and secondary catastrophe bond markets have continued to function in an orderly manner that is supportive of the motivations of cat bond sponsors as well as ILS funds and investors.

We review the catastrophe bond and insurance-linked securities (ILS) market at the end of the first-quarter of 2020, looking at new cat bond risk capital issued and the composition of transactions completed during the quarter. For the first time in any first-quarter and a rarity in any period, catastrophe bond and ILS new issuance exceeded $5 billion in Q1 2020.  Also impressive, is the fact almost $3.9 billion of the new risk capital brought to market focused on catastrophe risk issuance. Catastrophe bonds remain a very important source of reinsurance coverage for protection buyers and an attractive alternative investment opportunity for investors.

We spoke with Frank Majors, co-CEO and President of Nephila Holdings, and a Director of Nephila Capital, to discuss the ongoing coronavirus pandemic plus his views on how this will impact insurance-linked securities (ILS), reinsurance and risk transfer in general.  Frank Majors of Nephila provided us with unique insights into how the largest insurance-linked securities (ILS) fund manager Nephila Capital sees the state of the ILS and reinsurance market, as well as its prospects at this time, plus how it has been affected by the uncertainty driven by the pandemic. Please note: The audio tracks go slightly out of sync in this recording. We hope this doesn't impact your enjoyment of it.

We spoke with Tom Johansmeyer, Head of PCS (a Verisk unit), to explore a number of issues related to the global coronavirus pandemic. Johansmeyer explained the concept of silent pandemic risk and the threat it can pose to insurance and reinsurance portfolios, as well as the important role of hedging, including ILW's and the potential ramifications of Covid-19 for the ILS and reinsurance community.