The insurance-linked securities (ILS) market must demonstrate through its performance how it has worked to improve its underwriting and investment product offering after the recent years of challenging losses, Luca Albertini, CEO of Leadenhall Capital Partners told Artemis.
Albertini explained that the ILS fund industry has work to do in providing the quantitative evidence to interested investors about its performance, that will clearly demonstrate that improvements have been made and lessons learned.
Speaking to Artemis around the Monte Carlo Reinsurance Rendez-vous 2022 event, Albertini said, “The biggest challenges to the ILS market come out of the frequency and the nature recent loss activity and how this has affected the performance of some ILS funds.
“The sector has to show through performance the benefits of its efforts to increase risk adjusted returns, limit exposures to aggregate covers and secondary perils, clean up terms and conditions and support the best performing players.”
We asked Albertini what he felt ILS fund managers and investors should be focusing on as all thoughts turn to the end of year reinsurance renewals.
“The importance of deep dive underwriting and reflecting the impact of current inflationary trends to exposures and expected cost surge post event,” he said.
Adding that, “The recent loss activity has provided lots of information about our counterparties, their exposure, their modelling and their reporting, and this information should be used at best to be able to reduce exposure to poor performers and build an optimal portfolio with an enhanced margin for our investors.”
Albertini said that performance should be a focus for investors, but perhaps more importantly is how managers have responded to the challenging catastrophe loss environment and any improvements they have made.
“In terms of portfolio exposure, investors should be looking at how managers addressed the areas which have given rise to frictional losses and surprise losses,” he told Artemis.
“Generally this means less aggregate exposure with wide territorial scope and low deductibles and also means improved terms and conditions on policy and treaty wording, addressing the weaknesses of some of the wording which has given rise to surprises or disputes.
“But also, after a few years of loss activity, it is more and more clear the importance of the human factor in both underwriting business and managing claims.
“Access to quality underwriters and to a properly staffed claims department has been and will continued to be differentiators.”
For Leadenhall, the focus is on delivering consistency and having come through the loss activity with its assets under management relatively stable, Albertini feels his firm is well-positioned to offer investors quality and choice.
“Our focus will remain on offering a diversified range of investment products with different risk return and liquidity profiles, and on having the underwriting skills to be able to properly understand and price the risk we are taking on behalf of our investors.
“Leadenhall has seen a relatively stable asset base over the recent turbulent years and has been consistent in its offering and this is in itself a differentiator,” Albertini stated.