Retail insurance market players need to work with wholesalers that understand insurance-linked securities (ILS), Amwins COO Ben Sloop has explained, suggesting that the access this can give them to efficient sources of reinsurance capital is vital.
Amwins recently formally launched a new insurance-linked securities (ILS) partnership with Bermuda based ILS fund manager Integral Integral ILS Ltd.
Working alongside specialty insurance player Core Specialty, which will be the policy issuer, certain Amwins MGA risks are set to have their catastrophe risks assumed by funds under the management of Integral ILS.
This kind of relationship benefits all parties, with Amwins having access to efficient catastrophe reinsurance capital to the benefit of its retail clients, while Integral ILS gets access to the property catastrophe risk from further up the market chain towards the source of risk than the reinsurance renewal cycle would provide, while Core Specialty earns policy issuing fees and gets to retain the risk that is not desired by Integral’s ILS funds.
Amwins and Sloop believe the evolution of its business to partner with ILS, alongside the continued evolution of the ILS market is bringing opportunities to its insurance retailer clients.
“For retailers, the evolution of ILS means that establishing partnerships with experienced wholesalers is more important than ever,” Amwins said.
Mark Bernacki, President of Amwins Special Risk Underwriters and Amwins’ Alternative Risk Practice Leader, further explained, “Initially, ILS would only be deployed in the reinsurance or retro markets in instruments such as collateralized reinsurance, sidecars, aggregate retro products and catastrophe bonds. Today we are starting to see ILS capital moving up in the value chain and playing more directly in the insurance market.”
Amwins has been a leader in this space, of working with ILS capital to help its retail clients access more efficient catastrophe reinsurance.
Previously, Amwins had a large program in place with ILS manager Nephila Capital, which put its reinsurance capacity behind a significant amount of the catastrophe risk originated by Amwins MGA’s.
These arrangements allow Amwins to deliver efficient underwriting capacity for its MGA’s, to the benefit of the retailers they work with.
While, in this case, ILS manager Integral gets the natural catastrophe risk exposure its investors are attracted to and Core Specialty provides the infrastructure for policy issuance and also retains the attritional exposure and tail.
“This latest development is another example of how we build new products to support our market partners and bring more product to our retail clients,” Sloop explained.
“In this rapidly changing market, retailers need a wholesaler that understands the global capital markets,” Sloop continued. “Particularly as ILS funds continue to expand their appetite beyond traditional reinsurance.”
“For our market partners, ILS funds like Integral provide a capital-efficient way for them to expand their underwriting appetite while mitigating their critical cat exposure.”
What’s absolutely critical for a company like Amwins today, is ensuring its clients and partners benefit from the best quality and priced reinsurance capital available, through an efficient structure that reduces frictional costs.
As a result, direct partnerships with ILS players are inevitably going to expand, at least until the market truly modernises to a degree where reinsurance can be sourced through platforms that optimise the cost-of-capital and allow wholesalers and even retailers themselves to source risk capital even more directly from the capital markets.
Given this premise though, that eventually players like Amwins will gain increasing direct capital markets access for reinsurance risk capital purposes, you can guarantee that the facilitisation of insurance and reinsurance will also continue apace, as brokers seek to ensure they remain custodians of the access to reinsurance capacity for as long as possible.