The response of Bermuda, and the broader, insurance-linked securities (ILS) asset class to the global pandemic was reassuring, and as the market moves further into 2021, a flight to simplicity is expected to take hold, according to Ross Webber, Managing Director at independent financial services provider and fund administrator, Apex Group Ltd.
In a recent interview with Artemis, Webber explained that the resilience shown by the ILS market in the face of Covid-19 was not a surprise, but more reassuring that it stood up to this pandemic very well.
“The reality is the companies here in Bermuda in particular are very resilient. Bermuda itself has always proven to be very resilient through a variety of challenging situations,” said Webber.
“It’s no secret we’ve had to weather our own storms physically here on the Island. But we’ve also had to withstand them from a risk capacity perspective in the marketplace. And, of course, we’ve always blossomed as the waves of these different storms came through. Our systems and ecosystem is used to challenge, is used to resilience.”
That said, Bermuda, like the rest of the world, wasn’t expecting 2020 to include a global pandemic. But as noted by Webber, it’s been reaffirming that the marketplace almost carried on as business as usual, just as it did during other crises, such as the global financial crisis in 2008.
“I believe that’s a testament to our technology infrastructure, as well as the personnel infrastructure. There’s also been a reawakening to flexible working and the ability to work from home. I think that’s reflective of the professionalism and the skillsets in this marketplace,” he continued.
In response to a prolonged softened market state, dangerously low interest rates driving diminished investment returns, and the impacts of Covid-19, a significant amount of investment came into Bermuda-based companies throughout 2020.
Webber told Artemis that while it appears the majority of that interest from private equity was more towards backing traditional reinsurance structures, the effect witnessed at the January reinsurance renewals will be a catalyst for more private equity to come in.
“It just depends on the type of structures we expect that PE to invest in. But, I certainly see it continuing to add in 2021,” said Webber.
Interestingly, Webber went on to state that it’s not just a flight to quality that’s taking place in the ILS market but also a flight to simplicity, which in turn will attract more private equity.
“I agree with Kevin O’Donnell that there will be greater adoption of mono line cat bonds, as opposed to more of a proliferation of collateralized reinsurance, or the multi-peril collateralized insurance vehicles that we’ve seen,” he said.
Adding, “I do think products will be streamlined to become more specific to class, more specific to geography, more specific to a very finite peril than we’ve seen before. And, I see private equity being far more in interested in clarity and certainty; meaning, ‘if this happens then we’ve lost our capital and we understand that,’ it’s very clear.
“With some of the collateralized re vehicles, it’s not quite so clear when, and for how long, capital may be trapped, or under what circumstances will that capital be lost or trapped. So, I do think that we will see more sidecar and more cat bond investments on very specific mono line perils,” he explained.