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Retail investors to increasingly invest in ILS & reinsurance: KPMG’s Bridgewater


More and more investors are continuing to access reinsurance risk through established entities and via the set-up of new vehicles, as hedge fund managers and similar provide investors with increased access to the market, according to Craig Bridgewater of KPMG.

Speaking to A.M. BestTV at the 2015 SIFMA event in New York recently, Managing Director at the Bermuda-based unit of KPMG, Craig Bridgewater, discussed the future of the insurance-linked securities (ILS) market, highlighting some current changes.

“I think we’ll have to make sure that those who are investing in this understand exactly what they are getting themselves into, but yes, I do see a day when the retail investor will be allowed to invest in reinsurance risk,” noted Bridgewater, when asked about the potential for the ‘average guy in the street’ to be able to invest in the asset class.

It’s a time when structural changes to the global reinsurance space are taking form, pricing pressures caused by benign catastrophe seasons and an abundance of alternative and traditional reinsurance capital, coupled with intensified competition continues to evolve the market.

As the ILS and cat bond asset class becomes more widely used, resulting in greater acceptance of the vehicles as viable forms of risk transfer, the establishment of new structures via hedge funds, pension funds and alike will likely continue to expand.

Bridgewater echoed this point; “Initially when we talk about ILS we talk a lot about cat bonds, but now we’re actually seeing lots of funds that are being set-up to allow investors to get access to reinsurance risk.

“We’ve actually seen a lot of hedge funds, so hedge fund managers who are looking to set-up reinsurers in Bermuda as well. So again, that’s another way for them (investors) to gain access to reinsurance risk.”

A key theme Bridgewater’s interview with ratings agency A.M. Best’s TV unit presents, surrounds the burgeoning access to reinsurance risk that investors are now faced with.

Something that wasn’t always the case, notes Bridgewater; “Initially it was institutional players, but we’re now seeing funds being set-up to transform the reinsurance risk and actually offering that to different investors.”

Expanding on this point, Bridgewater explained; “So a sophisticated investor, with a minimum investment of $100,000, we’re seeing funds being set-up allowing access to investors in that space.”

The market is also witnessing an elevated presence of newly created retrocession vehicles, claims Bridgewater.

Part of the reason the current market is rife with competition is clearly down to the wave of new market entrants, but the regular business of current players also contributes, and it’s here that changes to risk transfer strategies are evident, advised Bridgewater.

“So when we first saw the industry start to emerge it was very high levels of risk that was being written, but we’re actually starting to see players deal in the lower layers of reinsurance risk, looking for more returns, probably taking on a little bit more risk but again, looking to enhance returns as they go forward.”

You can view the video from AM Best TV below:

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