A new insurance-linked securities (ILS) marketplace provider has been registered in Bermuda and has joined the regulatory sandbox of the Bermuda Monetary Authority (BMA), with the Blackbird ILS Marketplace promising to bring securitized cyber and specialty lines business to investors in a fixed income format.
Little is known about Blackbird ILS Marketplace Ltd., which was registered as a company in Bermuda in July and has now received approval from the BMA as an Innovative Intermediary – IMP, IMP standing for Insurance Marketplace Provider.
The approval was received last month and now sees the Blackbird ILS Marketplace joining the regulatory sandbox in Bermuda.
The regulatory sandbox provides startup companies that will be undertaking licensable insurance or finance-related activities in Bermuda with a safe space in which they can test new technologies or business models with a limited spread of clients in a controlled environment, for a limited period of time.
Blackbird ILS Marketplace has a regulatory sandbox license that runs until September 2022 and with these licenses typically only six months to a year long it seems entry to the sandbox was likely recent, alongside its September receipt of the regulatory approval as an Innovative Intermediary – Insurance Marketplace Provider.
So, what do we know about the startup going by the name Blackbird ILS Marketplace? Not a great deal.
What we have learned is that the Blackbird ILS Marketplace aims to provide a market for cyber insurance or reinsurance risks, as well as other specialty lines of insurance and reinsurance business, or risk transfer, providing a conduit for getting these risks to capital market investors in a fixed income format.
Blackbird ILS Marketplace Ltd. wants to become a closed-end but liquid marketplace that can offer investors syndicated access to certain insurance or reinsurance risks.
As we said, it’s understood the starting point is hoped to be cyber risks, while other specialty lines are also in scope, which is refreshing given the market has ample access to property catastrophe risks, albeit that access could be made more efficient with marketplace and securitization technology perhaps.
Risks placed through the Blackbird ILS Marketplace would be structured and modelled, while the syndication will ultimately be in a fixed income format, so fully securitized.
The goal is to facilitate trading of insurance-linked securities (ILS) and fixed income insurance-linked bonds between insurance, reinsurance and capital market investor clients.
Now, none of this is new, or sounds particularly different to a wide range of other startups we’ve encountered over the years, the majority of which have been unsuccessful and have either disappeared, or have a questionable transaction track-record and little evidence of real traction being made.
Taking on the creation of marketplace technology and securitization infrastructure and effectively looking to replicate the plumbing of the ILS issuance marketplace in digital form is a very worthwhile venture though.
What does success look like in this marketspace, of ILS marketplaces?
To us, success would mean producing technology that has either, been implemented sympathetically enough in order to appeal to and benefit all parties of the ILS transaction, or that can disrupt the marketspace sufficiently to make it impossible not to transact there because of the benefits on-offer.
Either way, any ILS marketplace startup has to also offer real utility to market participants, while greatly enhancing the efficiency of the market itself and ideally also reducing the cost of issuing, transacting or trading in ILS.
Lowering costs is not essential, as long as you’re raising efficiency of the market, as participants will still look to digital marketplace providers if they can connect risk and capital more effectively, more efficiently, or more easily show a broader risk capital spread to cedants.
Some of these benefits have to exist though, as otherwise just digitally replicating the flow of a functional market without any enhancement or incremental improvements to the way business is done, just won’t cut it and has caused the death of many ILS marketplace startups over the years.
The other angle that could result in success for a marketplace is if it has access to risks that the ILS market currently doesn’t readily see, or a proprietary way of making harder to access risks more easily structured and securitized, through modelling, data, indices etc.
Blackbird ILS Marketplace does seem to be at least targeting an area of the re/insurance market less frequented by ILS investors, in cyber and specialty lines, so that could bode well for an offering that the market can embrace in time.
The proof will be in the delivery and adoption by the market, of course. A few niche transactions does not make a marketplace, as we’ve seen before.
We look forward to learning more about the Blackbird ILS Marketplace in due course and will, of course, update you as information comes to light.