Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Innovation a theme at recent Bermuda ILS & reinsurance events


Executives speaking on the sidelines of the 2014 S&P PwC Bermuda Reinsurance Conference and the ILS Bermuda Convergence 2014 events earlier this month, stressed that innovation is vital to transition through the current reinsurance market challenges.

Reinsurance and insurance-linked securities executives had shared views of the market’s future and the challenges that lie ahead, with both sides being clear that the need to innovate is now becoming a necessity and that sitting back hoping that you will survive the structural change that is being witnessed is not an option anymore.

A key theme in the run-up to and throughout the events, as many expected, was how companies and investors alike are managing through the current low-priced, highly competitive reinsurance sector. The message from panelists and industry players at both events, although differing on certain aspects, was that to ensure the smoothest possible transition through the recent market turmoil an innovative mindset would be required.

ILS Bermuda co-chairman and PwC Bermuda insurance leader Arthur Wightman said; “The risk transfer market is being stressed by both structured and cyclical forces. These forces are not only creating dislocation but also driving innovation. This is manifesting in new ways of offering protection, new operating models and changes in capitalization of the industry.”

As more and more alternative or third-party capital continues to flood the reinsurance space, innovative products and techniques for capital deployment become highly important for firms seeking the same returns as in a previous, less volatile market.

Bernard de Longevialle, Managing Director at Standard & Poor’s, while discussing the reinsurance industry’s current stance compared it to previous experiences he had within the banking sector. Explaining that when credit spreads started declining in the 90s innovation was key in bringing back some predictability and stability to the market, and he holds the same opinion for the current reinsurance segment.

Sticking with innovation and also drawing on Bermuda’s ability to facilitate growth was Stephen Rooney, Partner and Co-Chair at international insurance practice Mayer Brown LLP. He said; “Capital markets investors’ participation in the reinsurance markets continues to experience tremendous growth and innovation, whether in the form of insurance-linked securities, sidecars, specialized funds or new company formations. Bermuda has been very much at the forefront of these developments.”

Bermuda’s stance as a solid and innovative reinsurance hub had been well documented in the months leading up to the annual Bermuda event, and several industry executives echoed this notion.

Head of Corporate at ASW Law, a sponsor of the ILS Bermuda Convergence 2014 event, Neil Horner commented; “We are delighted to be a return sponsor of Convergence 2014. Bermuda leads the way in the Convergence/ILS space and it bodes well for the jurisdiction that this event in only its second year has created such a buzz. Many key players in this sector are converging on our island that has for so long been renowned globally for the excellence and creativity of its insurance solutions.”

Anthony Rettino, Founding Principal and Portfolio Manager at Elementum, echoed Horner’s view, stating that; “Elementum is pleased to participate in Convergence 2014. Having personally witnessed the evolution of capital models from the early 90s until today, I welcome the opportunity to consider the changing landscape over the next 5 years and beyond in terms of matching the needs of our investor and insurance company clients. Bermuda is a key base of our operations and the industry at large and an ideal place to consider these topics.”

ILS, catastrophe bonds and the reinsurance sector are expected to continue their development as the end of 2014 approaches and the January renewal period draws closer.

Jeremy Pinchin, Chief Executive Officer (CEO) at Hiscox Re, noted the unpredictability of certain changes to the market, stressing that with certain aspects it’s difficult to know how permanent the changes are at this point of the underwriting cycle.

However, many executives expressed their confidence that the market’s improved analytics and growing talent leaves it in good hands, to innovate and remain disciplined as the sector transitions through an increasingly challenging period.

Finally, Chief Executive Officer (CEO) at Aon Benfield Securities, Paul Schultz, commented; “In 2014 a series of landmarks has been set in the ILS market, with record second quarter and first half catastrophe bond issuance, and more bonds being on-risk than at any other time in the history of the sector. As we see ever-increasing opportunities for the deployment of ILS capacity, events such as Convergence are important in helping to promote the exchange ideas on the ways in which we can expand and enhance our segment of the market.”

Also read our other coverage of the ILS Bermuda Convergence 2014 event:

Evolution of ILS market and collateralized reinsurance set to continue.

World Bank set to bring more cat bonds, looks at health risk transfer.

ILS is more than just an alternative to reinsurance: ILS Bermuda.

Third-party capital could grow to 30% of Catlin business: Jardine.

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