Collateralized ILS markets increase share of Heritage’s reinsurance


Collateralized reinsurance markets and ILS funds have significantly increased their share of the insurer Heritage’s risk transfer program, with a number of new ILS managers featuring in the company’s latest reinsurance program disclosure.

Heritage Insurance Holdings, the parent of Heritage Property & Casualty Insurance Company, placed a reinsurance program for 2016-2017 that provides for up to $3 billion of protection for the insurer, a 70% increase in protection from its $1.7 billion 2015-2016 program.

The insurance-linked investment market has played a significant role in that growth, not just through the Citrus Re catastrophe bonds, which are backed by ILS funds and capital market investors, but also through the participation of ILS managers in the traditional reinsurance placement on a fully collateralized and fronted basis.

Heritage’s 2015-2016 reinsurance program featured some ILS and collateralized reinsurance markets, with Horseshoe Re Ltd. fronting a collateralized participation for one investor or ILS manager, Nephila Capital participating through both its Poseidon Re and Rubik Re reinsurance vehicles.

Other ILS capacity may have been pulled into that year’s Heritage program behind a rated fronting reinsurance carrier, but it’s not clear from filings.

Otherwise, the only collateralized protection in the program for the 2015-2016 renewal was the Citrus Re catastrophe bonds, backed by ILS investors.

Move forwards one year to the 2016-2017 Heritage reinsurance program and it reads more like a who’s who of the ILS and collateralized reinsurance market.

The list features Aeolus Re Ltd., the reinsurance vehicle of Aeolus Capital Management, the Aquilo reinsurance strategy of Markel CATCo which participated on a fronted basis, ILS manager Coriolis Capital fronted via Horseshoe Re, ILS managers Fermat Capital Management, ILS Capital Management, Nephila Capital, Pillar Capital and Securis Investment Partners, all on a direct collateralized basis.

There will  be other ILS capacity coming in behind some of the re/insurers listed, which will have been fronting for them, as well. Also RenaissanceRe’s DaVinci Re participated, which is also third-party investor capital backed.

That’s not forgetting the Citrus Re catastrophe bonds, of which Heritage had $727.5 million in effect at the time of its renewal for the current year reinsurance program.

So it’s clear that Heritage appreciates the counterparty and capital diversification that the ILS and collateralized markets offer, as well as their cost-efficiency.

But this works both ways, as the ILS funds of the world appreciate a sponsor which manages its claims proactively.

This is something Heritage has shown to be a key interest for the firm, with its additional services such as post-claims water mitigation team, that sees it proactively connecting with claimants to try to avoid the development of issues such as seen with assignment of benefits.

ILS funds and collateralized reinsurance players are seeking greater certainty and enhanced clarity of any losses, as well as encouraging speedy clean-up of claims which means releasing collateral can be less delayed.

That makes supporting insurers which are proactive in managing claims and taking steps to enhance their recovery after major events much more attractive for the ILS market.

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