Hiscox Re ILS funds participate in Philippines sovereign parametric renewal

Hiscox Re ILS deployed capacity into the recent renewal of the Philippines sovereign parametric disaster insurance facility, adding to the amount of third-party capital now backing this risk transfer program.

The Philippines parametric natural disaster insurance cover provides 25 provinces in the country with disaster insurance cover against major typhoon and earthquake events.

For 2019, the program was renewed at $390 million in size, which is almost double the prior year and a number of new markets signed onto the program in this expansion, one of which was reported by the World Bank to be Hiscox Re.

Artemis has learned that a significant proportion of Hiscox Re’s capacity deployed into this Philippines parametric insurance renewal was backed by the  Hiscox Re ILS funds.

It’s encouraging to see a broadening of the capital sources being brought to this parametric disaster insurance program, with the Philippines having room to upsize it significantly in future thanks to the expanding market support.

To learn more about Hiscox Re ILS’ motivations for allocating capital to this transaction Artemis spoke with Portfolio Manager Ben Fox.

Fox highlighted that Hiscox Re has long been a champion of reinsurance market initiatives that seek to address the global protection gap and help mitigate against the potential future impacts of global climate change.

“Having ‘talked the talk’, this is an example of us ‘walking the walk’. We are extremely proud to support the proactive management of natural catastrophe risk exposures in the Philippines in the second year of this innovative transaction,” Fox said.

“We approached this deal in the same way as any other, assessing the transaction on its own merits.  There are specific criteria we expect in any risk we assume into our funds: we require reliable modelling data, sensible structuring and acceptable pricing levels.  Having met these benchmarks, we were happy to support this transaction with our investors’ capital, alongside Hiscox Re” he continued.

Importantly, Hiscox Re ILS has the resources of a much larger insurance and reinsurance group to call on when considering underwriting transactions such as this, something that helped in making the necessary investment decision to deploy capacity.

Fox explained, “From an execution standpoint, the Hiscox Re ILS funds benefit from the analytical, underwriting and fronting capabilities of our reinsurance business, which lends itself to a high degree of operational efficiency.  In order to get the transaction over the line, we also benefited greatly from Hiscox Re’s internal finance group, whose efforts enabled us to become a World Bank approved reinsurance market, and were happy to invest this time and effort as a sign of our willingness to support similar transactions in the future.”

We asked Fox whether the ILS arm of Hiscox Re has an appetite to do more of these types of transaction, as it looks to expand its portfolios of catastrophe risk.

“Absolutely yes. We hope that our participation in this transaction is a strong signal to ILS investors and market participants alike that we are very much ‘open for business’,” Fox said.

Fox also explained that the motivation to underwrite this type of transaction aligns well with the motivations of the Hiscox Re ILS investor base as well, saying, “It is well understood that well-priced diversifying risks are essential components in a fund from a portfolio construction perspective and we hope that our participation in this deal will help open up the pipeline for future deals.”

It’s encouraging to see expanding ILS market support for these transactions, which in future will benefit from the availability of efficient ILS capital as the disaster risk transfer needs of sovereign nations increase.