Posted on / by Sarah Hills

ILS: revolution then evolution

The evolution of an industry is a fascinating thing. Insurance-Linked Securities (ILS) have come a long way since they were introduced as a mechanism to complement traditional reinsurance capacity – now they are seen as a viable and growing asset class market in their own right.

ILS has witnessed major progress in several areas according to the panel of industry experts at the Artemis ILS conference in New York last week. Talking to a packed-out room full of ILS market practitioners – many of whom were personally responsible for helping to create the ILS sector from scratch – the theme was improvement and evolution. (For Artemis’ initial write up of the event, click here).

Artemis Founder Steve Evans told delegates that the ILS sector needed to find ways to take its own advice and improve the quality of its own products. There is also a need to focus on the efficiency of capital and how the industry can make its capital go further – which Steve often refers to in his editorials as the “elasticity of capital”.

Improvement

At the end of the day, ILS is all about collateral – a statement made while panellists from Leadenhall Capital Partners, K2 Advisors, Horseshoe, Schroder Secquaero and ILS Capital Management discussed creating more resilient ILS operational structures. The proposed solution to the growing problem of collateral release was better corporate governance and independence, while balancing regulatory requirements. The straight-talking Andre Perez, CEO of Horseshoe, told delegates that “ILS is a baby asset class and needs to grow up”.

At this point, I need to give a special mention to Jutta Kath, Head of Transaction Management at Schroder Secquaero, who was responsible for my favourite part of the day when she gave reinsurance and ILS brokers in the room a dressing down. The broker sat next to me slid further down in his chair while Jutta chastised the lack of education from the majority of reinsurance brokers, asking them to prepare wordings prior to inception, claims and quarterly reports and get a better grasp on pricing requirements.

 

 

 

Evolution

It’s often too easy to forget how far the ILS sector has come when talking about evolution.

Cory Anger, Global Head of ILS Origination and Structuring at Guy Carpenter, reminded delegates in the next panel that the market had come a long way – cat bond issuance effectively ceased from late 2008 to February 2009 after the collapse of Lehman Brothers. The sector then completely overhauled and improved bond structures, helping to draw spooked investors back to the market.

Cory urged delegates to remember to now use that same innovation when seeking new risks and markets for ILS to support – for example, securitising wildfire risk properly or tapping into the momentum of the ESG space, while not forgetting how important skill and ability is.

 

 

According to Michael Millette, Founder and Managing Partner at Hudson Structured Capital Management, we were sitting in the “luckiest room in investing” right now – because for the third time in the modern era, we have a new line of business.

For me, ILS is still one of the only true market disruptors. It disrupted the reinsurance sector in the same way that Uber and AirBnB completely overhauled the hotel industry and changed how people travel in cabs. That journey is set to continue.

Finally, a big thank you to HSBC for inviting me to watch the New York Rangers ice hockey team at Maddison Avenue – a thrilling way to end an action-packed trip to the Big Apple!

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