Reinsurance lawyers benefit from alternative capital and ILS trend

Reinsurance focused lawyers are finding an increasing amount of transactional work from the growing insurance linked securities and alternative reinsurance capital markets, according to a new study.

An analysis of the insurance and reinsurance legal sector performed by Who’s Who Legal finds that the growing transactional workload from the ILS, insurance and reinsurance linked marketplace is providing a valuable source of income for the world’s leading legal firms.

The report notes the significant interest shown in insurance-linked securities and reinsurance linked investments by institutional investors such as pension funds, hedge funds and other investors. This interest has helped ILS, catastrophe bonds and reinsurance risks become an asset class in their own right, the study notes, saying that these assets look set to remain a staple of many fund portfolios for the foreseeable future.

One New York based practitioner in the ILS space told the studies authors; “They were initially thought of as a novelty, but now they are making up a significant portion of the market and are set to stay.”

The study notes that the growing ILS and reinsurance capital markets are keeping lawyers busy with transactional work in domiciles such as Bermuda and the Cayman Islands. At the same time other domiciles such as Guernsey and Gibraltar have reported a significant effort in their jurisdictions to attract catastrophe bond and ILS business, which could bode new avenues of work for local legal practitioners in these and other domiciles.

The study notes that the development of this trend seeing capital coming into the reinsurance sector from non-traditional investors is likely to result in structural change in the reinsurance market.

As a result of this change, incumbent reinsurers are going to have to become more innovative and perhaps move into new lines of business to maintain their profits. At the same time reinsurers are increasingly managing third-party capital from investors or leveraging it within their own risk transfer, both of which boost legal work in terms of transactional tasks and the legal requirements for establishing new vehicles and funds.

The ILS and catastrophe bond markets evolution is providing valuable work for lawfirms, many of the necessary structures require significant legal time to establish, the transactions often require local legal representation and the development of alternative reinsurance capital should produce even more legal business.

Of course there is also the promise of possible dispute business for lawfirms as a result of the ILS and alternative reinsurance capital markets growth. It is to be hoped that the significant investment in time and legal costs spent in establishing and transacting ILS deals will mean that this is kept to a minimum, however disputes as the market grows will be inevitable and another stream of business for lawyers in ILS and reinsurance.

However, lawfirms cannot afford to sit on their laurels, there is a requirement for them to keep up with the fast paced ILS and reinsurance market environment, particularly in a time when capital is disrupting the incumbents. As a result, the study suggests that lawyers and lawfirms will have to “Adapt alongside their clients, with “creativity” and “flexibility” being their buzzwords.”