2020 is the year when the insurance-linked securities (ILS) market should flex its muscles to ensure the robustness of its products for both cedents and investors, speakers at our recent New York ILS conference said.
With a theme of ‘Building Back Stronger” the conference as a whole focused on the need for the market to respond to the losses of recent years to deliver an increasingly robust investment opportunity to its investor base, as well as protection that meets the developing needs of its cedents.
The first panel of the day had a focus on the operational side of the ILS investment business, exploring the need for the ILS market to respond to recent loss activity by ensuring that the operational structures it uses and creates are both resilient and robust.
Leading the session, Luca Albertini, CEO of ILS fund manager Leadenhall Capital Partners, explained what resilience means to him.
“For a resilient ILS operation the key thing is performance,” Albertini explained. “Don’t disappoint and do make your investors happy. But there is a lot in the backroom, in the pipework, that we do that requires constant attention and innovation all the time.”
Going on to discuss the need for a prudent approach to structures at the same time, as being overly restrictive could have negative effects for a fund manager.
Albertini explained on the topic of collateral release that, “The concept for us is that if we disappoint our protection buyer, if we make it too rigid, in a softer market when there is alternative capacity available at a comparable price we would not have a resilient operation. So it is a fine balance there.”
One of the key issues the panel discussed was the work of service providers and the way they can help the ILS market to remain ahead of the game and innovative when it comes to delivery of products to both investors and cedents.
“Super important is the robustness, creativity and operational efficiency of our service providers. That’s a very important part of resilience,” Albertini said.
The panel went on to discuss the need for this resilience, in the structures used and the processes that ILS fund managers and their service providers follow.
Given the impacts felt by the market and the fact this has restricted available ILS capacity somewhat, Albertini said now is a good time to double-down on making sure contract negotiations support the future resilience of ILS market product offerings.
“I think if there is a year where we should flex our muscles it is this one.
“There isn’t plenty of capacity. So we’ve already been able to change terms at 1/1, I think across the board and that’s something that should continue,” Albertini explained.
Panellists concurred, highlighting the importance of innovation and technology, as well as robust service provider selection, to ensure that products perform as advertised on both sides of the market.
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