Emmanuel Modu, Managing Director and Global Head of insurance-linked securities (ILS) at A.M. Best, has noticed ILS funds increasingly seeking more alliance with traditional reinsurers, driven partly by a push for efficiency.
Speaking with A.M. BestTV at the 2018 Artemis ILS NYC conference, held recently in Manhattan, Modu highlighted the search for alliance as a notable activity within the ILS space.
“What we’ve noticed is that ILS funds are now seeking actually more alliance with the reinsurers. In fact, they are seeking alliance through fronting arrangements, and in some cases actually starting their own insurance carrier, or helping facilitate their start-up carriers,” said Modu.
Kelvin Re and Humboldt Re are good examples of this, both being launched the ILS investment management unit of Credit Suisse, and providing the manager with rated platforms that enables access to more risk.
Modu noted the launch of both Kelvin Re and Humboldt Re, and also LGT ILS Partners Lumen Re, which is rated ‘A’ by global ratings agency A.M. Best.
“So, those are the kinds of things that we’re seeing, these funds actually kind of moving to form strong alliances with carriers,” continued Modu.
According to Modu, one of the reasons ILS funds are motivated to launch rated reinsurance vehicles, is to become more efficient.
“For one thing, these carriers perhaps want to eliminate fronting arrangements, which can actually cost them 6% – 10% of premiums. They also want to eliminate some of the trust structures they have to create for their transactions,” explained Modu.
He continued to explain that some ILS funds may have dozens of trust funds, which can be eliminated and consolidated into one trust, as was the case with Lumen Re.
“So in the case of Lumen Re they have done that, and also they have actually eliminated some of the branding issues involved by using a fronted carrier. So, in this way they can face the insurers directly, in some ways,” said Modu.
The convergence of ILS and traditional reinsurance continues, and as ILS players increasingly look to get closer to the original source of risk and seek greater alliance with their traditional counterparts, the blurring of the lines between alternative and traditional capital is likely to continue and intensify.
Modu was one of the 295 attendees at our Artemis 2018 NYC ILS conference on February 2nd 2018.
The full interview with Emmanuel Modu can be seen below:
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