Dmitry Mnushkin, President of Bermuda-based insurance and reinsurance focused software house, Treefrog Consulting Ltd., highlights the important role software plays in both the growth and efficiency of the insurance-linked securities (ILS) market.
Artemis recently spoke with Mnushkin following the release of Treefrog’s ILS and reinsurance deal pricing and rollup platform, Foundation, designed to provide users with a powerful pricing, risk and portfolio management solution for ILS and reinsurance transactions.
To start, Mnushkin explained the collaborative process of developing Foundation with the ILS market participants Treefrog piloted with.
“We first gathered an advisory group of several companies that represented a broad cross section of use cases in the reinsurance and ILS space and asked them about their pain points with existing systems. This gave us a good idea about what we did NOT want to do.
“We then compiled a list of the most desired functionality across the group, seasoned it with our own experience building such tools for clients and distilled out the highest value items that would form our minimal viable product.
“I cannot thank our advisors enough, especially Tangency Capital. They spent numerous hours with the dev team to make sure we were on the right path and gave us great feedback as the software developed.”
As noted by Mnushkin, many ILS funds are characterized by their extreme efficiency, an area where he feels software, such as the Foundation platform, plays a vital role.
“They (ILS funds) have small teams that want to stay that way while continuing to grow their AUM. To do this they need capable risk management tools that allow a single person to define, structure and evaluate a deal in minutes.
“Additionally, these companies don’t tend to have a lot of additional systems keeping track of the extra information about a deal like claims, experience losses, various tables and other information. Foundation can be configured to do all of this in one place.
“You can’t maintain a small team that writes a large amount of business without a system that empowers an individual to do the work of a team of underwriters, actuaries and modelers,” he explained.
Adding, “Efficiency is the mantra of ILS and a strong requirement of the capital that backs it.”
Furthermore, as the ILS market continues to expand and looks for growth in new areas of the risk transfer arena, Mnushkin underlined the ease and benefit of leveraging the Foundation platform to alter profitability calculations within minutes or hours.
“This flexibility allows the platform to keep pace with our clients as they bring new products, capacity and business direction to market. As long as ILS is free to innovate without the constraints placed on it by inflexible legacy software, it will continue to grow and expand at a pace others will find difficult to match,” he said.
Primarily, Foundation is a property catastrophe tool but has the ability to track any stochastic event. The platform has built-in support for quota share and XOL policies as well as retrocessional covers and collateralised reinsurance. And, if a user has access to catastrophe bond loss data, Mnushkin said that it is effortless to upload this and structure deals around it.
The release of Foundation comes at a time when digitalisation is accelerating and, with the current global situation seeing many more businesses and employees working remotely, the speed of change might well step up another gear as industries try and adjust to the impacts of the COVID-19 pandemic.
In light of this, Mnushkin offered some insight into how Treefrog can assist the ILS market in keeping up with the pace of change.
“Paper processes have long been on the way out, but it’s a journey that has already taken decades and widely expected to continue for some time to come. This expectation has now been demolished by large parts of the entire world moving to work from home in the past month.
“When this epidemic is behind us, many companies and employees will have found that they prefer this method. No big office space to rent, no lengthy commute taking hours out of the day, no catching the flu from a co-worker. But what about all the paperwork? Where do we file it? How do we get it if we’re not physically present? In my opinion, Covid-19 will result in a sharp, world-wide push to digitise.
“As more information comes in digital form, industry standards and trading platforms will arise to take advantage of it. Soon users of these platforms will do a deal in much less time than competing methods, forcing everyone to use one or more of these risk exchanges.
“I have no doubt this is where the ILS market is heading and is also where Foundation steps in. When everything is coming faster, a system that can ingest this information and rapidly make sense of it is essential to keep up. Our self-serve model of computational flexibility and customized inputs / outputs means our customers will not wait long for an answer or take long to change how that answer is given,” he said.
Of course, only time will tell exactly what impact the coronavirus outbreak has on the risk transfer sector, and from a wider context, its impacts on advancing the interconnectedness and digitisation of the world.
Looking forward, Mnushkin revealed that the company’s aim is to expand the functionality of Foundation based on what its clients’ needs are, which in turn ensures the platform is developed in a way that sees it stay fit for the ILS market of the future.
“That means working with our early adopters to ensure we add meaningful functionality that can be generally usable by many potential customers.
“We have a future feature list a mile long already and have commenced with the highest priority work. No matter what work we tackle next, we will continue to prioritize three things: 1. Build things that matter to many. 2. Build capabilities that are flexible and generic to maximize their use cases. 3. Build functionality that can be automated by our clients,” he concluded.