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

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."

We spoke with Sean Bourgeois, Founder & CEO of technology-based programmatic insurance and reinsurance risk transfer marketplace provider Tremor Technologies Inc.  Bourgeois explained how the marketplace Tremor has created works, as well as its value proposition for insurance and reinsurance market participants.  "We bring modern liquidity, while preserving relationships for cedents, brokers and reinsurers, essentially matching risk and capital much more efficiently than the traditional process today," Bourgeois explained.  Adding, "The heart and soul of what we do really is about price discovery and syndication of risk, using technology to do that."  He also discussed the industry-loss warranty (ILW) auctions that Tremor has been running on a weekly basis and how the data gathered on supply and demand appetite can be important for the broader market.  The discussion also covered current reinsurance renewal market conditions and how technology can assist in clearing the market, particularly when conditions are more challenging as we've seen of late.  "We see tremendous opportunity for brokers to capture that programmatic trading capability and in the case of where we sit today, to help unlock supply, help their clients complete programs, whether a full program or a shortfall, using technologies like we have," he said.  Overall, he said the goal at Tremor is to help all sides much more efficiently transfer risk in the reinsurance and wholesale risk insurance markets.

In this episode we discuss the fascinating state of the insurance-linked securities (ILS) and reinsurance market at this time, focusing on catastrophe bonds, industry loss warranty's (ILW's), reinsurance sidecars, retrocesssion and the mid-year renewals. With speculative capacity now being seen in the market, speculative covers being sought, and rates hardening in property catastrophe reinsurance, we find ourselves in a market the likes of which has not been seen for more than a decade. We discuss the buoyant catastrophe bond market, which has proven particularly resilient to the Covid-19 pandemic, the ILW market which has been struggling to clear, the reinsurance sidecar market where some sponsors are struggling for capacity and retrocession which some are calling dysfunctional. Feeding into these markets are the same set of dynamics. The losses of recent years, the ILS market impacts seen from trapped capital, the contraction of the retrocession offering, then the pandemic losses and investment side impacts, as well as now the ongoing uncertainty over what this all means for the coming months and years ahead. All of which shapes the market for a fascinating second-half and potentially a lot of hedging activity.

Cory Anger, Managing Director of GC Securities, the capital markets and insurance-linked securities (ILS) unit of reinsurance broker Guy Carpenter, joined us to discuss the state of the catastrophe bond and ILS market, under the lens of the Covid-19 pandemic.  Anger noted the strong start to the year for catastrophe bond issuance in 2020 and said that despite the initial hit caused by the pandemic, issuance is expected to remain robust.  The catastrophe bond continues to offer the protection many cedents are seeking, while enabling them to diversify their reinsurance and retrocessional capital sources, Anger said and also noted the investor case as well.  "One of the things I'm most proud of is that this marketplace again has reaffirmed that it does perform differently to the broader capital markets," Anger explained.  Highlighting the performance of ILS versus other asset classes and how ILS exhibited positive features under the pandemic-hit market conditions, Anger said, "We had a more muted reaction, as represented through the cat bond index, to the valuation of this product. But if you look at more traditional asset classes, if you looked at the same time period for the S&P 500, they were down almost 23%.  "When you also look at the correlation of ILS, represented by cat bonds, you can see a substantially lower correlation pattern between ILS and the other asset classes."  Anger went on to discuss what this means for investment allocations to ILS and reinsurance going forwards.

Luca Albertini, CEO of London headquartered insurance-linked securities (ILS) and reinsurance related investments manger Leadenhall Capital Partners LLP, joined us for a discussion about the state of ILS and reinsurance under Covid-19 pandemic conditions.  Albertini noted the ability of the insurance-linked securities (ILS) and catastrophe bond market to bounce back from the initial effects of broader financial market volatility due to the pandemic.  He went on to discuss the market opportunity to provide more pandemic insurance and reinsurance coverage, as well as the role of ILS funds and ILS investors in delivering on that.  "Something can be structured which affirmatively protects against pandemic for the commercial insurers. If we find that the demand is actually too big, then yes there is a role for public-private partnerships where you could have some backstop from the various governments," Albertini said.  Further explaining that, "Then, like we've seen for flood or terrorism, you could have the cat bond market, or the ILS market, providing some capacity to the governments."

Our latest interview saw us joined by Stephan Ruoff the Deputy Head of insurance-linked securities (ILS) asset manager Schroder Secquaero, a specialist division of global investment group Schroders.  During our discussion, Stephan explained that it seemed to take the reinsurance and ILS industry longer than expected to begin to understand the exposure it faces from the pandemic, as it is unprecedented in global reach compared to prior experience.  "Now what we see is a real, real test for the industry," he explained.  On the question of the liquidity seen in the catastrophe bond market on the back of pandemic driven financial market volatility and whether Schroder Secquaero found specific opportunities there, he explained, "Secondary market trading has indeed offered good opportunities. "We have, usually, a good liquidity position that helped us to trade in a number of instances and helped us also to enhance the portfolios that we run for our investors."  However, he went on to say that this window of opportunity was not particularly long.  So ILS fund managers and catastrophe bond investors had to be ready to take advantage of it, which Schroder Secquaero certainly seemed to be.

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.