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Innovative ILS can address “critical protection gap” – ILS Bermuda leaders


The evolution of the convergence space continues to influence the global insurance and reinsurance industry and this is only the beginning of the market’s transformation, which, along with traditional forms of capacity can address the global protection gap, according to industry experts.

Mind the Gap sign (Source: Autoprotect)For the insurance-linked securities (ILS) marketplace to continue expanding into new risks and geographies, with a view at contributing to the narrowing of the global protection gap (disparity between economic and insured losses post-event), a collaborative effort between the public and private sector, along with continued innovation is required.

This is the message from certain ILS market leaders that are domiciled in Bermuda, which is one of the key regions in the evolving and influential alternative capital space.

“The industry and the clients it serves are in a state of evolution – new risks, geographies and markets are being sought while those in need of coverage are seeking ways to obtain much needed protection in catastrophic times.

“Through collaborative efforts by governments and leaders in key industry market segments, addressing of the critical “protection gap” can be achieved and continue to evolve while still expanding the universe of business and helping those in need. Such socio-economic initiatives are best achieved through international cooperation and collaboration for the collective benefit of society,” said Greg Wojciechowski, ILS Bermuda Chairman and Chief Executive Officer (CEO) of the Bermuda Stock Exchange (BSX).

The global protection is regarded across the risk transfer landscape as one of, if not the greatest opportunities and challenges, as an apparent increase in the severity and frequency of natural disaster events continues to cripple global economies, particularly in emerging markets.

The features and capacity of the ILS space, along with the sector’s willing and able investor base, has the ability to play a role in creating innovative and influential solutions that facilitate the risk transfer needs of varied geographies against a broad range of perils.

This is something that has been noted by international organizations such as the UN and the World Bank, and the continued evolution of the ILS space could result in broader access and more widespread utilization of alternative risk transfer products.

Kathleen Faries, ILS Bermuda Deputy Chair and Head of Bermuda at Tokio Millennium Re Ltd., highlighted the continued expansion of the space, noting a rise in the utilisation of capital market solutions.

“We have already seen the rapid acceptance of this new capital by Bermuda companies as evidenced by many adding ILS Asset Management to their platforms, Side Cars, Cat Bonds or Risk Facilitation and Fronting. We have only seen the beginning stages of this transformation. It will continue to accelerate as this capital finds more efficient ways to access risk across the entire value chain,” said Faries.

As noted by Faries, ILS capital is continuing to search for ways to improve efficiency and access new risks, underlined by the desire of some in the convergence space to move down the value chain and access risk more directly.

The more ILS solutions are utilised in new regions and to protect against new perils, the more accepting insurers, reinsurers, and public sector entities across the world should become with the asset class, ultimately supporting its growth and ability to participate in closing the protection gap.

But as noted by Faries, it’s a continued evolution, and for the marketplace to continue growing at the speed it has in more recent times, market experts have suggested a need for a move into new lines of business, outside of the highly competitive and pressured property catastrophe space.

So, as stressed by Wojciechowski, innovation is needed and collaboration between the private and public sector is most likely essential in achieving the expansion of ILS in a manner that enables it to play a meaningful role in closing the protection gap, and getting much needed solutions to the right places and right people.

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