Access to risk & origination seen as key ILS differentiators: Beatty, Nephila

According to Adam Beatty, Managing Director of Nephila Advisors UK, a division of the world’s largest insurance-linked securities (ILS) manager, Nephila Capital, access to risk and origination are key ways fund managers can differentiate themselves.

Speaking with Clear Path Analysis, publishers of the annual Insurance Linked Securities for Institutional Investors report, Beatty explained that in more challenging market environments, there are ways ILS managers and reinsurance investment portfolio managers can differentiate themselves.

An important part of this, said Beatty, is “that of access to risk, the breadth of origination, and variety of risk. The more risk that can be accessed, the better the choice that is available to create attractive, risk adjusted portfolios.”

He continued to stress the importance of being able to efficiently match that risk with investor capital.

Artemis has discussed previously that for Nephila, being closer to the original source of risk provides value to investors, with the manager increasingly looking to source risk in the primary insurance market, as well as the more traditional ILS route, in recent times.

“Within the ILS sector there can be fees and costs in the distribution chain for catastrophe risk that are beyond the headline management and performance fees that are visible to investors. Minimising these costs to create efficient, all in one fee for getting that risk from source to investors capital is an important differentiator.

“We feel that at Nephila we have a strong origination engine and have built a very efficient infrastructure to get that risk to our capital,” said Beatty.

Despite recent losses, the global reinsurance market remains awash with capital from both traditional and alternative sources, so becoming more prudent at sourcing risk more directly provides Nephila with a way to look to offset market challenges.

“Another important point is that in years where we see events happening, like in 2017/18, it allows managers to differentiate themselves through their communication with investors around the events.

“We know and understand that investors want information on the likely impact of the events to the funds they’re invested in and would like it as soon as possible both during and after an event occurs,” said Beatty.

When disaster strikes, it takes some time before the ultimate insurance and reinsurance market hit is fully understood. With this in mind, ILS managers can differentiate themselves by providing helpful data and industry loss estimates in a timely manner, explained Beatty.

He added that this is something that ultimately assists investors in understanding the business as well as the likely outcome for the fund, and is an area that Nephila has devoted its attention to “in order to provide helpful feedback to investors swiftly after an event.”