Alissa Fredricks, the former CEO of Markel CATCo’s Bermuda operation, is planning to launch a new insurance-linked securities (ILS) fund manager, which to begin will have a focus on developing next-generation retrocessional reinsurance products.
Fredricks has been working on the initiative for some months now and is approaching the key stage of due-diligence with a number of potential cornerstone investors for this retro strategy.
But, more important than just lining up capital to support a return to the ILS market with a retro play, Fredricks is extremely keen to create something better than the retro reinsurance products that have gone before.
Fredricks told us that her ILS fund manager, which is currently codenamed Athena, will look to offer retro reinsurance that more closely meets the needs of cedants, while also providing a resilient long term offering with an attractive performance potential, for investors.
As a result, it’s likely to be further out-of-the-money, in terms of sitting higher up in the reinsurance tower of most retro programs.
But at the same time, Fredricks aims to offer a retro product that continues to offer similar benefits to cedants as original pillared retrocession products, in terms of a capital efficient, broad protection that responds in-line with a cedant’s own loss experience.
“We’re looking to build on the principles of what made legacy retro pillared products successful, while at the same time introducing new structural innovations aimed towards mitigating our portfolio’s potential exposure to losses and trapped collateral,” Fredricks said.
As the ILS market and reinsurance in general has begun to move a little further away from the risk in retro towers, while increasing the focus on named perils in response to recent loss years, so too Fredricks’ Athena would look to move to similarly more remote layers, but while trying to retain similar benefits for cedants.
Fredricks has a co-founder lined up and a number of other key hires in mind, on the technical actuarial and underwriting side.
The business is expected to be Bermuda-based, with Fredricks hoping hiring can begin as soon as early expected commitments from investors are secured.
For Fredricks, it’s important not to be seen as a copycat of pillared retrocession products that have gone before, wanting to deliver something more robust and with greater usefulness for cedants and the participating investors.
As a result, it will be important to work closely with cedants and investors, she told us, working on “tailor made deals, that are not only matched to client books, but also matched to the particular risk appetite of our investors.”
“Being small and starting new, our ILS fund manager will have the ability to be creative and nimble, so we can entirely dedicate our focus towards furthering the development of bespoke deals that are not currently offered in the market,” she said.
Early indications from cedants are that they’d welcome a bespoke approach to a kind of pillared product, Fredricks explained.
From our experience the lack of capital efficient retro options has been an issue for some reinsurance carriers and smaller players such as Lloyd’s syndicates.
On the investor side, Fredricks is seeing encouraging interest.
“Certainly, there’s interest from investors, now it’s about matching the potential investor appetite with the buyer universe.”
Given the bespoke nature of the retro deals expected to be underwritten, Fredricks wants to work closely with capital providers, to offer an “opportunity for investors to own their own retro portfolio, and to have a hand in the early construction of the portfolio and long term goals of the strategy.”
She said it’s important for investors to feel more involved in the ILS deal process and for them to receive greater transparency.
“By working on tailor-made deals there is a chance to secure more data and offer better look-through analytics for end-investors.
“I want investors to understand the complexities of retro, not fear them. But the way to get there is to provide the best in service in terms of investor reporting, modelling and analytics,” she told us.
While retrocession is the first focus, given the clear product opportunity in this area of the market, the ambition will be to move quickly beyond that to offer other collateralized reinsurance and insurance-linked securities (ILS) products.
In particular, Fredricks ambition is to offer investors, “Opportunities for investing in ILS deals that are positively aligned from a sustainable development, or ESG standpoint.”
Adding that, “We want to create a measurable difference in how risks are transferred, while minimising the protection gap, enabling investors who come into the space to clearly see the sustainable benefits in supporting insurance-linked risks.”
The sustainable, or ESG, angle is important to Fredricks and she sees the potential to create capital efficient structures for closing protection gaps around the world, backed by ILS capital.
Taking learnings from the retro space, Fredricks intends to work on next-generation ILS products that can deliver positive benefits, socially and sustainably. At the same time, she said that her new company will donate a share of its profits to climate change resiliency projects and disaster relief related charities.
Fredricks sees it as important to “advance the ILS space” at this time and hopes the work she’s putting into product design and advanced analytics will position her new company for success, but as importantly to make a difference.
On the timetable, January is the target, given the all-important retrocession renewals and Fredricks said she hopes if conversations with investors continue to proceed as planned that her new ILS manager will be up and running in time to participate.