The insurance-linked securities (ILS) market recognises the need to learn from recent catastrophe loss activity and to firm up its processes and structures to the benefit of cedents and investors, while at the same time ILS players are ready to grasp emerging opportunities for growth and diversification, speakers at our fourth conference in New York said last week.
Discussions between speakers and also attendees at Artemis’ fourth conference in New York, ILS NYC 2020 highlighted a positive outlook within the insurance-linked securities (ILS) market.
The conference held on February 7th 2020 saw 375 registered attendees assemble in the heart of Manhattan for the fourth annual Artemis ILS NYC event.
With a theme of ‘Building Back Stronger” the conference focused on the need for the market to respond to losses of recent years to deliver an increasingly robust investment opportunity to the investor base, as well as protection that meets the developing needs of cedents.
Speakers began by discussing the importance for the insurance-linked securities (ILS) market to create resilient and robust operational structures.
Led by Luca Albertini, CEO of ILS fund manager Leadenhall Capital Partners, this session saw its panellists reflecting on the response to recent years of catastrophe losses and loss creep.
Albertini explained that while performance of ILS and reinsurance linked investment strategies is always front of mind, “There is a lot in the back room, in the pipe work, that we do that requires constant attention and innovation all the time.”
“Super important is the robustness, creativity and operational efficiency of our service providers,” Albertini said.
He also added that ILS remains a “relatively young industry” with a lot still to learn.
Specifically on collateral release, Albertini and his panellists discussed the importance of this being a factor in rating risks.
“The speed of collateral release as well as the information should be embedded in the price,” Albertini said.
The second session of the conference discussed the need for the industry to innovate towards more responsive approaches to risk transfer.
Led by Jo Syroka, Director of New Markets at ILS fund manager Fermat Capital Management, this group of expert speakers discussed a broad range of subjects surrounding ILS industry and the responsiveness of its products to protection buyer needs.
Responsiveness, Syroka said, “Can mean new products, new triggers, new coverages, new options, new data, new technologies, all with the aim of growing this market and making it deeper and more resilient.”
She noted that the ILS market has become “critical” within global insurance and reinsurance, “being incredibly responsive to many coastal states in this country, for example, Florida, California.”
But, “We all know there’s a lot more to do,” Syroka said, especially in emerging regions of the world, but she also highlighted the many innovations already achieved by the ILS market in its two decades or more of existence, “That will lay us in good stead and lay the foundation for a more responsive future.”
The conference’s third session featured a perennial topic of discussion, the expansion of insurance-linked securities (ILS) into new lines of business and new opportunities within the reinsurance market.
Leading the panel discussion, Tom Johansmeyer, Head of PCS, explained how diversification opportunities are becoming increasingly prevalent and also realistic targets for ILS funds and their investors.
As well as a number of business lines becoming increasingly into focus for the ILS market, Johansmeyer and his panel also discussed cyber risks extensively.
He highlighted “The protection gap problem that nobody really talks about,” saying that there is a mismatch between supply and demand, which can provide an opportunity for ILS funds, particularly those able to offer index-based capacity for retrocession purposes.
“A few years ago, they could turn on the faucet. Reinsurers used to say, we can protect as much of this as we want, it’s not a big deal because we can keep finding capacity. Reinsurers now cannot get enough retro, so reinsurers can’t write as much cyber reinsurance as they want. Corporates can’t buy enough from insurers, because insurers can’t sell enough as a result,” he explained.
“The problem we’ve got now is, there just isn’t enough capacity out there for us to keep doing a good job,” adding that ILS markets can help with this gap.
Following a networking lunch, our fourth panel session of the day featured a discussion on how ILS can help to build a better world, covering topics surrounding climate change risks, resilience and socially responsible risk transfer.
Barney Schauble, Head of Labs at Nephila Advisors LLC, a unit of the largest ILS investment manager Nephila Capital, led this session and he began by explaining the scale of the opportunity, not just in addressing the much-discussed protection gaps that we all now know exist, but also in responding to the need for climate and weather related risk transfer opportunities that often go uninsured.
“There’s still a limitation as to what we’ve done and one of the things we want to explore on this panel is how do we change that,” Schauble said.
“Getting closer to the future is something that we spend a lot of time thinking about (at Nephila),” he said. “What is happening next in these marketplaces and what are the needs that are as yet unmet? Not just what risk does the industry currently cover, what are we currently doing?”
Schauble also highlighted the important role of technology tools and analytics in helping risk capital to expand its remit, particularly into climate and weather related exposures.
He likened climate exposures to cyber risk, saying that that investors and corporations all over the world are holding “silent cyber” risks within their non-decarbonized portfolios and assets, but they’re not being paid for it.
“If you can decarbonize successfully in your mainstream equity portfolio and then you can bring in a different form of climate risk for which you are explicitly being paid. That’s a different risk return profile,” Schauble explained, referring to investors allocating more to ILS while reducing their climate exposures on the other side of their books.
Discussing the use of ILS such as catastrophe bonds and other forms of reinsurance by government or state sponsors, Schauble explained the importance of continuity and for the industry to work to educate and encourage long-term views to risk transfer programs.
“If you’re buying insurance only occasionally you’re not buying insurance, you’re just wagering,” he said.
Following the four main panel sessions of the day, each of the leaders joined me on stage for a lively questions and answers hour, with plenty of audience input.
The panellists all reflected on the discussions already heard, remarking on a number of themes that had underpinned all of the sessions.
Among these were the importance of being responsive to create increasingly robust, institutional quality ILS investment opportunities by learning from experience.
Origination was also highlighted as key, particularly in terms of helping potential cedents access the ILS market, as well as in unlocking previously under-insured categories of risk.
Technology was also highlighted as vital to the future of the market, as well as efficiency and the market participants in the audience were urged to engage with the start-up community.
An undercurrent to this session was the need for risks to be dealt with more responsibly in society in general and how this could also lead to greater uptake of risk transfer, with the upshot being a need for more efficient insurance and reinsurance capital.
Attendees to the conference came from a wide array of organisations and institutions, representing traditional insurance and reinsurance market players, ILS market specialists, as well as investors both already engaged and interested in ILS as an asset class.
The diverse group came ready to discuss the state of the market and learn from its practitioners and it is clear from the quality of those attending that the ILS sector remains of significant interest and is seen as offering future potential, either in terms of risk transfer capacity or as an investable marketplace.
It was a pleasure to host what was our eighth international ILS conference and we appreciate the positive feedback from those in attendance, the contributions from our insightful speakers and the support of our all-important sponsors.
We look forward to seeing some of you in Singapore on July 9th 2020 for our fifth ILS conference in Asia, ILS Asia 2020. Please save the date for this event and sign up here to be notified when tickets are available.
For all enquiries regarding sponsorship opportunities for upcoming Artemis conferences please contact [email protected]
Thank you to all of our valued ILS NYC 2020 sponsors, detailed below:
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For all enquiries regarding sponsorship opportunities for future Artemis conferences please contact [email protected]