Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Aeolus, Elementum, Nephila (and ILS) among largest Florida writers


The alternative reinsurance capital and insurance-linked securities (ILS) market plays a vital role in providing Floridian primary insurance companies with much-needed peak property catastrophe coverage and ILS investment managers are at the heart of providing stability to the Florida insurance market.

Leading the charge in 2015, according to Fitch Ratings, are vehicles operated by ILS fund managers Aeolus Capital Management Ltd, Elementum Advisors, LLC and Nephila Capital.

In a new report, in which Fitch looks at the importance of risk transfer and reinsurance capital for the Florida homeowners insurance market, the rating agency says that alternative markets are playing a growing role.

Additionally, the catastrophe bond market and its investors are consistently providing increasing amounts of reinsurance capacity to back Florida’s homeowner insurers and also Citizens, again playing a key role in making the state more prepared for and able to recover from hurricanes or storms that may strike.

Fitch says that the collateralised reinsurance vehicles operated by these three ILS fund managers are among the alternative market entities assuming the largest amount of Florida premium, based on 2015 figures.

Underwriting transacted through Aeolus Re Ltd., Elementum Re Ltd. and Nephila’s Poseidon Re Ltd., sit among the alternative markets largest risk bearers from the Florida specialty homeowners market.

Of course many other alternative markets and ILS fund managers are participating regularly and in increasingly meaningful ways in the Florida and U.S. property catastrophe reinsurance market, these three are however the largest from 2015 according to Fitch.

Collateralized reinsurance sidecars also provide a significant amount of protection to Florida based primary insurers, as well as on a retrocessional basis to the traditional reinsurers that also take significant shares and likely still dominate the region, no matter how rapidly ILS players have grown their participation.

Fitch said that the reinsurance market as a whole provides “critical underwriting capacity” for the Florida insurance market, with these vehicles key in the alternative space, as well as some hedge fund backed reinsurance firms and of course the catastrophe bond market.

With the last hurricane to make landfall in Florida being hurricane Wilma 11 years ago in 2005 memories may have shortened, but Floridian insurers show that they are aware of the risks they bear and are taking advantage of efficient reinsurance capital, improved terms from both alternative and traditional markets and also ILS capacity in the form of catastrophe bonds.

“Over the last few years intense pricing competition and excess capital in the reinsurance market contributed to large rate reductions and more favorable terms and conditions, allowing Florida homeowners’ insurers to keep and expand reinsurance programs,” commented James Auden, Managing Director, Fitch.

And with Florida property catastrophe risks continuing to provide some of the most attractive returns for ILS investors we can expect to see the focus on the market continue, even after the next major hurricane and subsequent losses strike.

ILS investors are well-educated by their managers and understand to expect losses when this happens. At that point it will be interesting to see how Floridian primary insurers cope with the claims burden and what role alternative reinsurance capital, the capital markets, ILS funds and their investors play in aiding their recovery and providing continuity of coverage in Florida going forwards.

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