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

This podcast episode features a panel discussion from our July 2020 virtual ILS Asia conference, participants discussed the opportunities for parametric risk transfer structures in the region, as well as how reinsurance and insurance-linked securities (ILS) markets can capitalise on them.  Speakers said there is a need for greater education and awareness, but that risk managers across Asia are becoming increasingly comfortable with the idea of parametric structures.  In recent years, and notably in the insurance, reinsurance and ILS space, parametric trigger structures have grown in popularity and speakers explained how corporate risk managers use this type of protection as an alternative and to complement their traditional programmes.  The panel also discussed the use of parametric triggers in catastrophe bond transactions.  Availability of data can be an issue though and speakers said while in Asia there is access to satellite data relatively easily, it is still more difficult to obtain windspeed data, for example, when compared with more developed markets like the U.S.  Participants also offered some thoughts on the investment case for parametric ILS structures, insurance or reinsurance and how investment managers approach these types of transactions.

This podcast episode features panellists at our recent virtual ILS Asia conference discussing important role of insurance-linked securities (ILS), such as catastrophe bonds and other capital markets backed reinsurance tools, in narrowing and closing protection gaps in the Asia Pacific region.  Featuring participants from the World Bank Treasury, reinsurance broker Guy Carpenter's GC Securities, law firm Rajah & Tann and the Monetary Authority of Singapore (MAS), the panellists also discussed the developing Singapore and Asia marketplace for ILS and how that can help in closing risk financing gaps.  They explained that the Asia Pacific region has become a key component of the global insurance-linked securities (ILS) marketplace and that interest from cedants and issuers continues to surge.  Whether through quota share reinsurance arrangements or in reinsurance sidecars that ILS investors participate in, or more directly through issued catastrophe bonds and collateralised reinsurance deals, the ILS markets participation in and support of Asian catastrophe risks is increasing, the panellists agreed.

In this podcast episode we hear from Franz Josef-Hahn, CEO of Hong Kong headquartered reinsurance company Peak Re and Iain Reynolds, Director & Head of Analytics at Peak Re, who gave a keynote presentation on the developing Asia reinsurance and ILS market. The pair highlighted rapidly increasing probable maximum losses (PMLs) across Asia, as development and urbanisation accelerates at scale in the region. This highlights the need for more insurance and reinsurance capital, as well as the need for better data and modelling to support risk transfer and deployment of capital into the burgeoning risks in Asia. The scale of the PML's that Peak Re believes will accumulate in areas like the Greater Bay region of China suggest that insurance-linked securities and the capital markets have an essential role to play in supporting expansion of insurance across these areas. As a result, Peak Re's CEO Franz Josef Hahn said that ILS capital can support the emerging opportunity for underwriting Asian risks, and highlighted his companies partnership role with investors, as well as its recent investment into the segment with its acquisition of Lutece and formation of its own ILS fund manager Peak Capital. Following the keynote I spent 15 minutes quizzing Franz and Iain, which you can hear at the end of this podcast episode as well.

For our next few podcast episodes we're going to share some of the audio from our recent virtual ILS Asia 2020 conference. More than 850 attendees have now watched sessions from the virtual conference, a figure that keeps on rising. To begin, this episode features Mr. Benny Chey, Assistant Managing Director (Development and International), Monetary Authority of Singapore (MAS). Mr. Chey discussed the role of Singapore in the insurance-linked securities (ILS) market, the activity it has seen in terms of catastrophe bond issuance and the importance of capital markets participation in provision of global insurance and reinsurance capacity. In particular, Mr. Chey highlighted the role of ILS and catastrophe bonds in provision of catastrophe reinsurance, helping to narrow and close protection gaps in the Asia Pacific region and beyond. He also revealed an expansion of the Singapore ILS grant scheme, which will now run until the end of 2022, providing a fantastic opportunity for insurance and reinsurance companies to bring cat bond or other ILS transactions to market in Singapore at lower-cost of issuance.

With the news that Integral ILS Ltd. is launching as a new Bermuda based ILS fund manager, I thought it would be interesting to look at the ILS start-up opportunity through the Integral ILS lens. Starting up is never easy, no matter the expertise of those involved, the quality of the provenance, or the blue-chip quality of the partners involved. In the case of Integral ILS, they have all three. The expertise of Managing Partners Lowther and Zeng. The provenance of their respective track records, history in ILS and of working together. The blue-chip quality of stakeholders AmWINS and TransRe. But Integral ILS so far doesn't have capital and at this time when institutional investors remain spooked by the pandemic volatility and often focused elsewhere, it may not be the easiest thing to get started, let alone to gain meaningful scale. Of course nothing is every simple or guaranteed in the world of insurance-linked securities (ILS) and while Integral ILS will face the same challenges as others trying to raise capital at this time, the start-up has a lot going for it in the platform they are creating and the strategy they intend on following. So it's going to be interesting to watch their progress and to see how receptive investors are to this latest ILS start-up offering.

Niklaus Hilti, Chief Executive Officer and Chief Investment Officer of Credit Suisse Insurance Linked Strategies, kindly joined us to discuss the current status of the ILS investment space and reinsurance market trends.  We began by discussing the impacts of the Covid-19 pandemic in insurance-linked securities (ILS). Hilti explained that the Credit Suisse ILS team had been closely watching the situation develop since they were alerted to it back in January.  "We run life and non-life on our platform. This was generally something where we expect a significant importance for our life business. On the non-life side we also expected that a pandemic is going to have a significant impact on the insurance industry and also on the financial markets," he explained.  Adding that, "On the operational side it's really not a big impact, apart from travelling. On the business side, Covid-19 definitely has impacts."  In terms of specifics, Hilti said, "In the life business you definitely have to prepare and you can. That means looking into liquidity and also whether you can still de-risk at this point in time. And also putting up some hedges, which we did for both life and non-life relatively early on in the process.  "We had a lot of technology and models helping us on the pandemic side, but I would say so far, on the life side the impact, yes we see some mark-to-market movements, but at the moment we believe there will be very little to no loss of notional if the pandemic stays contained in developed countries, as we see it at the moment."  "But it's far to early to say that this is over," Hilti cautioned.  He added that, "On the non-life side, the catastrophe ILS side was as expected affected by the flight to liquidity of investors. For us that was more of an opportunity and not too dissimilar to what we saw in 2008."  On the market for property insurance or reinsurance and business interruption, he added, "Insurance is definitely impacted. Reinsurance is somehow impacted. And then ILS is less impacted than these two segments of the overall market. But for the reinsurance industry it's a tough event."

With hurricane season now officially underway we spoke with Jin Shah, Director, Capital Markets & Resilience and Jeff Waters, Senior Product Manager both of catastrophe risk modelling specialist RMS.  RMS provides risk analytics, modelling and data services to the insurance, reinsurance and insurance-linked securities (ILS) industry, so with hurricane season upon us we discussed the outlook for the months ahead with Jin and Jeff.  The pair discussed the forecast outlook for the 2020 Atlantic hurricane season and the tools that RMS offers to help companies in the re/insurance and ILS market better understand their exposures.  Encouragingly, the ILS market is "making a real investment in the analytical processes and workflows that will result in an underwriting process that hopefully mitigates against surprise results," Jin Shah explained.  We discussed the potential impacts of the Covid-19 pandemic on catastrophe response and claims assessment, as well as how the pandemic lockdown and parking of assets has changed the exposure of the industry to a degree.  Waters highlighted that, "Our models do have a lot of flexibility for our users to conduct sensitivity tests and essentially generate their own view of risk for situations like this."  Shah discussed the RMS products that help ILS funds and insurance-linked investors to better understand the threats posed to their portfolios when a hurricane is heading for land.  "This year we're extending the insights and now we've got this notion of a conditional probability of attachment, based on a given level of industry loss," he told us.  This will help ILS investors analyse what specific storm impacts could mean for their catastrophe bond profiles, Shah further explained.  Shah also told us that RMS' tools can show revised probability of attachments for different ILS assets based on given industry loss scenarios.  RMS will also deliver its daily event selection as a risk profile through RMS' Miu platform, which will allow ILS fund managers to analyse their private transactions as well, not just cat bonds, so they can provide better insights to their investor customers.

In this podcast episode we discuss current reinsurance market dynamics and the balancing-act that is capital inflows vs pricing and rate pressure. In a recent article we said that it's a fine line between accolades achieved through raising significant sums of new capital and rate pressure returning to the reinsurance market. In this podcast we summarise some of these thoughts and go into more detail, of relevance to the segment of the market focused on property reinsurance and in particular catastrophe risks (where Artemis is most focused, due to its insurance-linked securities (ILS) market leaning). The property reinsurance and catastrophe risk segment is not an area of the market that is particularly poorly capitalised throughout, but much of the capital raising activity is going to result in reinsurance and insurance players diverting more capacity to this area. With ILS funds and other insurance-linked securities (ILS) ventures likely to bring even more capital to market over the coming 12 months, we wonder whether there could be a return to an over-capitalised segment in property catastrophe reinsurance and retrocession risks? Or whether discipline will prevail and the market control its appetite, while enforcing a much needed and somewhat raised (from previous levels) pricing floor.

Matt Jones, Principal at financial technology (fintech), insurance or reinsurance technology (insurtech) venture capital investment firm Anthemis joined us for our latest video interview.  Jones talked about the venture investing thesis at Anthemis, the sectors of fintech and insurtech that excite the company, as well as his views on the insurtech wave that has spread across insurance and reinsurance markets in recent years.  "If I think about the investment thesis we've got... within the insurance industry everything is in scope, at least at this point. We still feel that there are sufficient opportunities across pretty much all lines of business, whether it's P&C, life and health, primary or reinsurance and across the entire value-chain," Jones explained.  "We're also investing in a series of other spaces that we call adjacencies. These are where there are opportunities to embed financial products, or insurance products, into other industries and where you can see other businesses being built that could have a knock-on impact on the insurance industry further down the line," he continued.  He discussed trends in insurtech, both before and now through the lens of the Covid-19 pandemic, as well as where Anthemis sees opportunities going forwards.  On the potential for the capital markets and insurance-linked securities (ILS) funds to work alongside insurtech start-ups, Jones sees companies looking to efficiency, in terms of capital and reinsurance capacity.  Jones said, "One of the things we see our start-ups spending a lot of time thinking through, is what is the most efficient form of capital that I should be working with, or the best form of capital.  "Is it the reciprocal model, is it traditional reinsurance, is it having their own carrier. You know, is it doing something using derivatives in Bermuda, for example. For each start-up there's going to be an ideal answer, I think."

Michael Millette, Founder & Managing Partner at Hudson Structured Capital Management, a specialist alternative asset manager with a focus on sourcing insurance and reinsurance linked returns for its investors, joined us for our latest video interview.  Millette discussed insurance-linked securities (ILS) and reinsurance investing, giving his view on prospects for the ILS asset class beyond the Covid-19 pandemic and what that may bring for investors.  "Tragedy and history. This is as near to what any of us have seen in our lifetimes, an event affecting everybody all around the world, so it's tragic and likewise it's historic," Millette said.  On the Lloyd's of London estimate for a $107 billion non-life industry loss, he commented, "I expect that's in the right neighbourhood. We have been talking and thinking about losses on that scale.  "It's interesting though, this is not just a gigantic catastrophe loss, although it is a gigantic global catastrophe. This is a massive horizontal loss for the industry."  He went on to explain what this could all mean for the ILS fund and reinsurance linked investment market.  Describing some of the immediate opportunities that could arise in specific lines of business, as well as in investing in insurtech start-ups, saying "this a digital forcing event around the world" and calling it "the insurtech moment."