Posted on / by Sarah Hills

Where next for ILS in Bermuda?

A potential ‘Cyber Re’, a new Bermuda class of 2020, more parametric solutions to plug the insurance protection gap, the potential growth in mortgage Insurance-Linked Securities (ILS), packaging up Business Interruption as a tradable risk, swapping out layers of terrorism coverage between insurers, reinsurers and governments… These were all topics discussed during the ILS Bermuda ‘Beyond Convergence – continued evolution’ London forum this week.

Rein4ce Chief Executive Officer (CEO), Mairi Mallon, chaired a panel on emerging risks and solutions, which came right after a session moderated by Appleby lawyer Brad Adderley on developments and changes to the ILS market. He asked if there could be a new class of 2020 in Bermuda – but wondered if these new ventures would take the form of sidecars and ILS, as opposed to traditional reinsurers, due to the growth and maturity of the alternative risk transfer market.

Evolution has been a regular conversation in the ILS space, and it is no surprise. The measured pace of growth in the ILS market has created an environment where the global capital markets now see ILS as credible and as a strategic part of their investment portfolio.

Andy MacFarlane, Managing Director and Head of Pricing and Analytics for AXA XL, Darren Redhead, CEO of Kinesis Capital Management, Ian Coulman, Chief Investment Officer at Pool Re, and Jean-Bernard Crozet, SVP Advisory and Head of London Office for Horseshoe, all joined Mairi to talk about the biggest opportunities in the ILS sector at the moment.

Cyber was an inevitable discussion point. The panel said cyber represented a potential market of $7 billion in premium – that’s the equivalent of three times the size of the airline insurance market.  Jean-Bernard was bullish on the cyber/ILS relationship, stating that cyber was the most promising opportunity for ILS. The capacity and appetite in the traditional insurance and reinsurance markets is a “drop in the ocean” compared to the product needs of the Fortune 250/500 companies, he said.

However, Darren had a slightly more measured approach. While not discounting the potential and the appeal of a cyber ILS market, he questioned the current modelling, data and pricing methods, stating that nobody yet had “articulated cyber accumulation properly”, and suggested that the market was currently taking on cyber risk blindly.

Meanwhile, Mairi asked if there could potentially be a ‘Cyber Re’ as a possible mechanism to address this huge market risk – similar to Pool Re or Flood Re. Ian said that while the concept would work in theory, it was unlikely that any government would want to take on an unlimited liability, as cyber is not country or peril specific.

For Andy, the biggest opportunities still lay in property catastrophe. He made the point that there were still vast gaps in adequate protection in regions and perils all around the globe in property cat. The physics and models already all exist in the developed markets, so why not address those needs first before delving into untested and unmodelled territory, he said. Brent Slade, President of Markel-backed ILS start-up LodgePine Capital Management, ec hoed Andy’s sentiment. He said in an earlier panel discussion that while a new asset class such as cyber makes for a decent soundbite, investors still wanted “vanilla ILS”.

The topic of the best way to create markets was thrown out to the audience. Brendan Plessis, Executive Vice President, Head of Emerging Markets at AXA XL, suggested that Business Interruption was ripe for a transition to ILS. He also proposed the interesting concept of swapping out layers of terrorism coverage between insurers, reinsurers and governments.

So, does ILS expand beyond its traditional realms of coverage, or should it stick to its knitting? Let me know what you think.



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