Covid-19 an “interesting test case” for ILS: Frank Majors, Nephila

It’s too early to say exactly how the current pandemic plays out, but the challenges are expected to provide an interesting test case for the collateralised and insurance-linked securities (ILS) business model, according to Frank Majors, Co-CEO and President of Nephila Holdings, and a Director of Nephila Capital.

In a recent video interview, which you can view in full here along with our other video content, Artemis spoke with Majors about the potential impacts of the Covid-19 coronavirus pandemic on ILS markets, and what the marketplace looks like from the view of the world’s largest ILS fund manager.

To start, Majors explained that, so far it’s evident that the reinsurance and ILS markets have adapted well to the new normal of remote working.

“It’s an industry that is used to disasters and catastrophes and figuring things out on the fly, and we’ve really seen good inflow on business. We’re getting our fund NAVs done on time, we got our audits done on time, so the service providers are answering the call.

“The only thing that we’ve noticed was a little bit of a temporary slowdown on submissions on the velocity on the insurance side,” said Majors.

Adding, “But, that’s picked back up and actually rebounded to be higher than it was this time last year. So, really, the in-flow on the reinsurance side it seems like it’s going to be an early market, people are trying to wrap up capacity, so we are sort of all systems go and things seem to be going well.”

For insurers, reinsurers, and ILS participants, the challenges being caused by the pandemic is driving a lot of uncertainty, and it appears that companies are trying to remove some of this unpredictability by securing their renewals early.

Turning to the catastrophe bond space, Majors said that it continues to function and the secondary market remains extremely vibrant, and, while primary issuance has faded somewhat, there’s an expectation of a solid issuance pipeline.

On a longer-term basis, Artemis was eager to hear Majors’ thoughts on how going through the current crisis might influence investor demand going forward.

Generally speaking, said Majors, any asset that is uncorrelated should be attractive and with the world not getting to be a less risky place, demand for risk capital will likely rise.

“So, in some form or another we definitely expect capital to flow into the market. And, I think this is going to be a very interesting test case though, because I think that this does test the sort of collateralised or ILS business model to a certain extent.

“I think commentators have been waiting for a good test and there’s some question whether Irma was the test. I think that our view is that certain risks are equity type risks and certain risks belong in a broader more diversified portfolio, and I think how the industry deals with this COVID-19 coverage issue is going to be really fascinating and is going to have a lot of implications for frankly everyone’s business model, whether it’s an insurer, a reinsurer, or an ILS fund.

“I think it’s too early to really answer exactly how it plays out, other than to say that we do think that the demand for uncorrelated assets is going to increase and the demand for ways to hedge risk is going to increase. So, somebody is going to benefit from this,” said Majors.

The video is embedded below. All of our video interviews can be viewed in full here.

We’re going to bring you these video interviews with leaders of the ILS and reinsurance industry on an ad-hoc basis, as and when our time and that of our contacts allow.

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