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

The insurance-linked securities (ILS) fund manager community continues to deal with trapped collateral from previous catastrophe years, but the opportunity cost has grown, we learned in our latest Artemis Live video interview.  Our latest Artemis Live video interview is with Megan Green, a Partner in the PwC Bermuda Asset Management Assurance Group.  Green's work is focused on providing assurance services to clients in the asset management industry including insurance linked securities providers and she joined us to discuss insurance-linked securities (ILS) asset management activity in Bermuda today.  Green highlighted trapped collateral as a continuing issue for ILS fund managers and one that now comes with an increasing opportunity cost.  She explained that alongside investor appetite and capital raising, trapped collateral remains the other hot-topic for ILS managers.  "That's been an issue for a few years now, but we are seeing collateral get released, which is great," Green said.  But continued, "I think in this market, with rates being as strong as they are, it almost shows that the opportunity cost of that trapped collateral is greater. "So it's probably getting an even greater focus, because obviously investors and ILS managers would love that to be deployed."  While trapped, this collateral and capital cannot be recycled to be put to work in fresh reinsurance arrangements, which in the hard market environment would come with significantly higher-yields than the arrangements that now see collateral still trapped.  Green went on to say that, "It'll be interesting to see what happens in that space. You know, you obviously have your commutations that are going on. But, there's chatter about whether standard commutation clauses are put in contracts, if that solves the problem. So I'll be interested to see what happens."  Listen to the full podcast episode for more insights from PwC Bermuda's Megan Green.

Insurers have lost control of their claims frequency, the speakers in our latest Artemis Live video interview explained, as technology enabled claims instigation has exploded, driving a significant increase in litigated claims. For our latest Artemis Live interview we spoke with Joe Petrelli, who is well-known in the industry as the President and Co-Founder of rating agency Demotech and now also a co-founder of 4WARN Inc, and Todd Kozikowski, CEO, co-founder and shareholder of 4WARN, INC.  This is a little different to our typical interviews as we wanted to allow the speakers to get the data across, so there is a presentation involved as well. If you're listening to the podcast and want to see the slides, please find our YouTube channel for Artemis.bm. Joe and Todd have been working closely together to deliver insights for the insurance and reinsurance industry that have previously been masked or hidden, but are extremely pertinent today. Specifically, they have undertaken significant work to mine and analyse data, to help insurers and reinsurers better understand some of the causes of the explosive claims litigation trends affecting the industry today, especially in the United States. 4Warn Inc. is a relatively new venture the pair have established to provide awareness of tech-enabled claim instigation, to assist carriers and third parties remediate claim instigation.    They define tech-enabled claim instigation as the confluence of litigation funding, litigation marketing, litigation financing and search engine optimization to initiate claims. Viewers and listeners to our podcast will be only too familiar with the claims inflation and loss amplification trend seen in catastrophe events over the last few years, in Florida and other regions.  The work Joe and Todd have been and continue to do, sheds light on murky practices that are ramping up claims inflation today and causing issues to insurers and reinsurers, while also contributing to the challenges of insurability we see with some carriers exiting regions that are both catastrophe or climate affected, but importantly some of the most affected by litigation too. Listen to this full episode to learn more about the way digital techniques are weaponising insurance claims litigation, driving a significant elevation in claims frequency through to insurers, with ramifications for reinsurance and ILS market interests.

Parametric insurance solutions continue to be more broadly adopted, but the technology behind their triggers is also critical and solutions are developing fast.  Artemis recently spoke with Callum Higgins from Moody’s RMS, a Product Manager for Moody’s RMS event response services, and Martin Hotz, Head Parametric Nat Cat at Swiss Re Corporate Solutions, to learn more about how parametric triggers are used in hurricane insurance and risk transfer today.  The pair discussed advanced catastrophe risk modelling tools and their application in delivering parametric risk transfer solutions, with a particular focus on hurricane risk and the Moody’s RMS HWind product.  Higgins explained some of the use-cases for the HWind product in risk transfer and said that, "Specifically, in the insurance-linked securities space, around live cat trading for instance, making decisions around that, but also on the investor relations side. So being able to communicate to your investors while the storms approaching lands, what that could mean for the funds, for instance.  "The ILS space is one area we've seen HWind forecasting in particular being used quite a lot."  Hotz highlighted how Swiss Re uses the HWind product, saying, "We offer parametric hurricane insurance to our commercial insureds based on the wind-speed data from Moody's RMS and their HWind real-time data and we have issued our first policy that settles based on HWind back in 2016.  "So we're now in our eighth hurricane season of providing such cover and did pay also in some of the industry-shaping events over the past couple of years.  "For us, HWind meets the criteria of being a fast, independent and reliable data service, which as with any parametric policy is always at the core."  Listen to this full podcast episode for insights into parametric insurance and risk transfer, as well as the role of models and real-time data in parametric triggers.

This was the fourth session of the day at our Artemis ILS NYC 2023 conference, held in New York on February 10th 2023.  This conference was Artemis' largest insurance-linked securities (ILS) event to-date, with over 390 registered attendees enjoying a wide-range of insightful speaking sessions and networking opportunities throughout the day.  Attendees came from around the world to hear thought-provoking discussions from insurance-linked securities (ILS) market leaders, all under the theme of "(Re)construction & Renewal(s)."  This fourth session from our ILS NYC 2023 conference features a panel discussion focused on new opportunities within insurance-linked securities (ILS) and catastrophe bonds, titled: (Re)newed opportunities - Where next and how to get there.  The panel discussion was moderated by Tom Johansmeyer, Head of PCS, Verisk Insurance Solutions (now of Inver Re).  He was joined by: Julia Henderson, Chief Commercial Officer (CCO), Vesttoo; Chris Caponigro, Global Head, AXIS ILS, AXIS Capital; and Michael Millette, Founder & Managing Partner, Hudson Structured Capital Management.  The discussion was wide-ranging and saw panellists speaking about many of the opportunities they see as tangible areas to expand the ILS asset class into.  Speaking from their extensive experience, the panellists noted the need for continued work in educating investors, about the new opportunities available in ILS, plus their expectation that market growth could come just as quickly from non-catastrophe areas of ILS, as it will from the more traditional catastrophe business lines.  Listen to the full podcast audio from this panel discussion for more insights into how the insurance-linked securities (ILS) and catastrophe bond market continues to expand its horizons, to new classes of business and opportunities.

Two competing factors are set to drive the conversation during the 2023 Atlantic hurricane season, as well as the risk. But there are other important areas insurance, reinsurance and ILS market interests should remain alert to, according to Jeff Waters of Moody's RMS.  Jeff Waters is a meteorologist and has been the Product Owner for the RMS North Atlantic Hurricane Models since 2018.  He’s been at the company for over a decade in roles focused on hurricane modelling and joined us to discuss the hurricane season just as it officially began.  Commenting on the forecasts we've reported on, Waters said, "The majority of the forecasts tended to focus on two competing factors, the first is the the ENSO state, the other competing factor is the sea surface temperatures in the Atlantic basin, those continue to be well above average.  "So you have two different competing items happening and I think in a lot of instances, the forecasts that are coming out for this season, are are almost expecting the two to offset each other to an extent."  He went on to explain the uncertainty this presents though, not least due to timing, saying, "Some of the more recent forecasts that have come out have started to deviate from that, that average range there, so certainly pointing to some of the uncertainty that could play out over the next four to six months, especially if one of those signals, whether it be the state of the basin in terms of sea surface temperatures, or the transition to an El Nino state, if one of those happens earlier or later than expected.  "Or perhaps the El Nino state isn't quite as strong as it's currently projected to be, that could have a direct influence on how the season plays out in terms of hurricane hurricane activity and the total number of named storms."  Waters went on to discuss how these climate signals could translate into direct risk for US landfalls, what insurance, reinsurance and ILS markets should be watching closely and how to think about the latest risk modelling tools that can assist with analysing hurricane risk this season.  Listen to the full podcast episode for many more insights into the 2023 Atlantic hurricane season from Moody's RMS' Jeff Waters.

The global captive insurance marketplace and how it is developing was the focus of our latest Artemis Live video interview and we learned that data is critical to help in effective captive formation.  Our latest Artemis Live video interview is with David Gibbons of PwC, a Partner and the Captive Insurance Leader at PwC Bermuda.  David works with some of the largest captive accounts in the world and delivers captive insurance solutions throughout the captive lifecycle.  In this interview we discussed some current captive insurance market conditions and trends David is seeing, both in Bermuda and globally.  Asking David how he views the current captive insurance market, he said, "If you gave me one word, I would say active. If you gave me two words, I'd say very active."  "I think that activity is on really two fronts. One is you're seeing new formations and you're seeing the speed from interest to formation move, from potentially one-to-three years, to a few months once a feasibility study is done," he explained.  "I think the other area of activity we're seeing is existing captives re-looking at the business they write, not only the lines, but the layers and as they negotiate pricing with reinsurers looking to see what portions of the business they may take that they have traditionally not taken."  On the Bermuda captive insurance market, Gibbons noted that it remains a leader, thanks to its strong and responsive regulator and regulatory environment, its adjacency to global reinsurance capital, and the abundance of local expertise and service providers.  He said the captive market remains niche, although it is growing and that it's vital to have talent on hand that understands what it means to be at the cutting edge of where the captive insurance industry has been and where it's going, while access to data is seen as a critical feature for effective captive insurer formation. Watch the full video interview for more insights from PwC Bermuda's David Gibbons.

Establishing insurance-linked securities (ILS) investment management operations and the impact of recent international tax developments in the industry was the focus of our latest Artemis Live video interview.  Our latest Artemis Live podcast episode is with Scott Slater of PwC, a Partner and the Tax Services Leader at PwC Bermuda. Scott also leads PwC in the Caribbean’s International Tax Services group, which is based in Bermuda and the Cayman Islands. In this interview we discussed some recent international tax developments and how they could affect insurance, reinsurance and also insurance-linked securities (ILS) interests. Slater explained that a key area of focus for his practice and team, in relation to insurance-linked securities (ILS) market participants, is the controlled foreign corporation (CFC) rules and the passive foreign investment company (PFIC) rules. “In the ILS space, most of these structures are either CFC’s or PFIC, and our practice specialises in giving the information that those US investors need to complete their tax returns and satisfy their reporting requirements for making that foreign investment,” he said. Slater also explained that a component of the work his team at PwC undertakes is to help ILS investment managers identify the right structures for their businesses, from a taxation point of view. “It's an interesting conversation, particularly with those asset manager backed ILS vehicles, to explain to them what has to happen in Bermuda and the people they need to get in Bermuda to satisfy those requirements, to mitigate the risk that they've somehow created a taxable presence in the US. “So we work with a lot of clients around the structure, but also the people functions and the activities that need to happen from Bermuda, to achieve that tax result,” he commented.  Listen to this podcast episode for more insights from PwC Bermuda's Scott Slater.

This was the third session of the day at our Artemis ILS NYC 2023 conference, held in New York on February 10th 2023.  This conference was Artemis' largest insurance-linked securities (ILS) event to-date, with over 390 registered attendees enjoying a wide-range of insightful speaking sessions and networking opportunities throughout the day.  Attendees came from around the world to hear thought-provoking discussions from insurance-linked securities (ILS) market leaders, all under the theme of "(Re)construction & Renewal(s)."  This third podcast from our ILS NYC 2023 conference features a panel discussion focused on the Florida insurance and reinsurance market, challenges that must be overcome, as well as the ILS industry perspective on that, titled: (Re)constructing a healthy market.  The panel discussion was moderated by Judith Klugman, Global Head of ILS Distribution, Swiss Re Capital Markets.  She was joined by: Jennifer Montero, Chief Financial Officer, Citizens Property Insurance Corporation; Michael Stahel, Partner/Portfolio Manager, LGT ILS Partners Ltd.; Adam Schwebach, EVP, Tampa Branch Manager, Gallagher Re.  The discussion was wide-ranging around some of the challenges faced in Florida, the work that is being undertaken both legislatively and at re/insurers to improve the situation, as well as the appetite of reinsurance and ILS capital to be deployed in the state and what else might help to encourage more risk capital back to Florida.  The panellists discussed some of the challenges this side of the market has faced in recent years, while also highlighting steps that have been taken to help in rebuilding investor confidence and also looked ahead to the prospects for a return to growth.  Listen to the full podcast audio of this Florida insurance, reinsurance and ILS focused panel discussion, for more insights into that important peak peril region, the prospects for improvement there and what else might need to change to attract more capacity back to Florida.

When it comes to underwriting cyber risks, capital, whether traditional insurance and reinsurance, or alternative from the insurance-linked securities (ILS) market, "has to be rewarded", Matt Harrison from risk modelling and analytics specialist Moody’s RMS, told us in our latest Artemis Live interview in April 2023.  As Director of Product Management for Cyber at Moody’s RMS, Harrison sets the strategy on building their cyber risk focused modelling products and analytical solutions.  He also spends his time helping insurance-linked securities investors and funds to understand cyber risk as a class of risk to expand their allocations to.  Harrison explained that, when it comes to building models for cyber risk, Moody's RMS is taking a targeted approach.  "I'm not going to build this huge comprehensive suite of stuff and waste my time, I really want to be targeted about that.  "Really from a from a model perspective, we try and divide the world into like perils. I think sometimes we hear this language about scenarios and scenarios are very bespoke things. We've got to think much more holistically, or otherwise we're not covering the whole risk spectrum.  "So we think about cloud outages, data breach, malware, and ransomware, things like DDoS so attacks against networks and in each of those, we want to build a model that really tries to describe the physics of the system, if that if that's a sensible way of describing it," he told us.  Later in the interview, Harrison also highlighted the need for capital to be adequately rewarded for taking on cyber exposures. " One of the problems for the insurance and reinsurance industry is, there is a limited amount of diversification within cyber. There's only so much diversification that you can find, and therefore that capital has to work harder, it has to be rewarded," Harrison said. "I think that's why the demand is so high for capital to come in, to really drive it. But the way that we see it is that it has to pay a risk premium, because of that diversification." Listen to the full podcast episode for many more insights on cyber risk and cyber risk models from Moody's RMS' Matt Harrison.

This was the second session of the day at our Artemis ILS NYC 2023 conference, held in New York on February 10th 2023.  This conference was Artemis' largest insurance-linked securities (ILS) event to-date, with over 390 registered attendees enjoying a wide-range of insightful speaking sessions and networking opportunities throughout the day.  Attendees came from around the world to hear thought-provoking discussions from insurance-linked securities (ILS) market leaders, all under the theme of "(Re)construction & Renewal(s)."  This second session from our ILS NYC 2023 conference features a panel discussion focused on the private ILS and collateralized reinsurance side of the market, titled: (Re)building confidence.  The panel discussion was moderated by Mark Gibson, Head of Products & Solutions ILS, Schroders Capital.  He was joined by: Kathleen Faries, CEO, Artex Capital Solutions; Eveline Takken-Somers, Senior Director, Lead Portfolio Manager - Insurance Portfolio, PGGM; and Chin Liu, MD, Director of ILS, Fixed Income Solutions, Responsible Investment Research, Amundi US.  The discussion focused on the largest segment of the ILS market, where collateralised reinsurance and private ILS assets are structured and invested in.  The panellists discussed some of the challenges this side of the market has faced in recent years, while also highlighting steps that have been taken to help in rebuilding investor confidence and also looked ahead to the prospects for a return to growth.  Listen to the full episode for a private ILS and collateralized reinsurance focused panel discussion, as well as more insights into the potential for the ILS market to continue growing its importance in global reinsurance circles.