End-investors in the insurance-linked securities (ILS) sector should be pushing for more transparency from their ILS managers now, aiming to level the playing-field with the transparency the reinsurance market offers to its cedents, panellists said today.
Speaking during a virtual panel discussion as part of the ILS Bermuda Convergence 2020 event today, a number of investors and investment consultants discussed the need for more transparency in the ILS market.
They also discussed the fact ILS investors are not always treated on equal terms with the other parties in the ILS market chain, suggesting that cedants and brokers perhaps have better access to data and greater transparency, when the capital providers, being end-investors in ILS, are not as well furnished with information.
Robert Howie, Principal at Mercer and a consultant to end-investors said that in the ILS market, “There’s a constant referral to the clients of the brokers and insurers.”
He further explained that ILS managers need to think about culture, “Between the culture of an asset manager and an insurer,” making it important to think about who is the client and where transparency flows to.
Bernard Van Der Stichele, Portfolio Manager, Insurance-Linked Securities at Canadian investor the Healthcare of Ontario Pension Plan (HOOPP), agreed and said that despite ILS investors perhaps being more significant in importance, because their investments support the actual risk transfer contracts in the space, they also need to have their interests looked after and sometimes it doesn’t seem like a level playing-field.
Howie went on to say that the, “Transparency has probably slightly got better this year. As people are more available, investor relations and portfolio managers.”
This is because of the COVID-19 pandemic and the trend to working from home, which has made ILS managers staff more available to respond to questions, he was implying.
Van Der Stichele said that this “accelerated change” is something he’d like to see sustained.
He explained that right now, “There will be improved transparency for a time in the hard market, but very quickly that will disappear again.
“I’d like to see investors pushing for more transparency and investors treated as equal partners, with the same access to data.”
James Turner, Investment Manager at the RPMI Railpen pension fund, explained some issues in terms of transparency, “There’s transparency post-event and there’s transparency upfront and it’s the upfront that matters the most. If Board’s don’t understand the risk, they’re just going to head for the exit.
“I still see instances in ILS where the returns aren’t being represented fairly. If the ILS industry improved how they presented things, it’s just going to make it more sustainable long-term.”
Jason Rector, Managing Analyst and in charge of ILS investments at the State of Wisconsin Investment Board, noted that while market conditions are improving, transparency remains key for him as an allocator to the ILS sector and that investors can drive change in the market.
Rector explained that there are similarities between how the ILS market is right now and how the fund-of-funds space fared coming out of the credit crisis.
“You’re going to see the larger investors pushing managers to be more customised, as you saw in the fund-of-funds space,” he explained, adding that “This could result in deeper partnerships.”
Van Der Stichele said that the reinsurance market as a whole needs to focus on making its workflow more efficient, across the entire reinsurance chain, which should benefit ILS investors.
“As opposed to looking to grow the market by covering new perils, there has to be more effort to improve issues in the existing market and with the current transfer of risk,” Van Der Stichele said.
Adding that, “There are still basic issues that need to be tackled, before we start seeking new risks to feed to investors.”