ILS Bermuda http://www.ilsbermuda.com Access to the latest information from global leaders in the ILS market in Bermuda Thu, 10 Oct 2019 15:36:26 +0000 en-US hourly 1 https://wordpress.org/?v=5.2.4 BSX CEO elected to board of WFE http://www.ilsbermuda.com/news/bsx-ceo-elected-to-board-of-wfe/ Thu, 10 Oct 2019 15:33:25 +0000 http://www.ilsbermuda.com/?p=5011 Bermuda’s representation on the board of the World Federation of Exchanges has been extended to a second-term. Greg Wojciechowski, president and chief executive officer of […]

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World organisation: Greg Wojciechowski, president and CEO of the Bermuda Stock Exchange has been elected to the board of the World Federation of Exchanges (File photograph)

Bermuda’s representation on the board of the World Federation of Exchanges has been extended to a second-term.

Greg Wojciechowski, president and chief executive officer of the Bermuda Stock Exchange has been elected to the board for a three-year term. He is a director the America’s region.

He is one of four directors elected to the board at the 59th general assembly of the WFE in Singapore. The board of directors is 18-strong.

Mr Wojciechowski told The Royal Gazette: “This is a very solid accomplishment for the BSX and Bermuda as we have been recognised for our contribution to the WFE organisation in respect of our input on issues confronting the global exchange space.”

In a statement he also said: “Bermuda’s contribution was solidly recognised by the WFE global membership in their support of the re-election of the BSX to the board for a second term. The recognition of the BSX and, by extension, Bermuda and its commercial and regulatory infrastructure substantiates our ability to punch above our weight and the importance of our contributions to the global dialogue on issues that impact and confront our various industry segments.”

The other three people elected to the board with Mr Wojciechowski are Juan Pablo Cordoba, CEO of Bolsa de Valores de Colombia; Jiwon Jung, chairman and CEO of Korea Exchange; and Akira Kiyota, group CEO of Japan Exchange Group.

Nandini Sukumar, CEO of the World Federation of Exchanges, said: “We are pleased to welcome these directors to the WFE board. The WFE is privileged that its leadership team represents such a wide range of countries, markets and perspectives.

“It has never been more important for the WFE — the global trade association for the market infrastructure industry — to work as a collective force to maintain open, internationally coherent public markets.”

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The zebra has spots! http://www.ilsbermuda.com/news/the-zebra-has-spots/ Wed, 09 Oct 2019 15:26:21 +0000 http://www.ilsbermuda.com/?p=5006 It has been a long and sometimes winding history but Bermuda remains at the centre of the transformation of the insurance and reinsurance market, says […]

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It has been a long and sometimes winding history but Bermuda remains at the centre of the transformation of the insurance and reinsurance market, says Kathleen Faries, chair of ILS Bermuda.

Since we formed ILS Bermuda seven years ago, and held the first Convergence event in Bermuda, there has been not only a convergence, but what appears to be a new “hybrid” animal emerging that looks traditional but acts as if it were alternative–like that zebra that was born with spots.

As the insurance and reinsurance market continues to evolve, change and grow in Bermuda, it seems a good time to look back and also to gaze into the future.

Early days

Back in 2012, insurance-linked securities (ILS) and associated structures, such as sidecars, cat bonds and traditional reinsurers starting their own ILS asset managers, were the talk of the town. Capital in the range of $40 billion had come into the market which felt significant and gave the sense that this asset class would surely grow and Bermuda was the natural fit for this growth.

The groundwork was laid for Bermuda to become the jurisdiction of choice for ILS in 2008 when the Bermuda Monetary Authority (BMA) introduced legislation for the establishment of special purpose insurers (SPIs), which streamlined the process for the incorporation of ILS and brought speed to market. This was specifically designed to attract ILS and collateralised insurance companies to Bermuda.

The legislation came into effect in October 2009 and the Bermuda Stock Exchange (BSX) began listing ILS. At the time, interest in the asset class was growing, and by July 2010 the exchange reached its first major milestone when cat bond listings pushed through the $1 billion barrier. By 2011, ILS listings had passed the $3 billion mark. The $5 billion figure was breached in September 2012.

Yields in the cat bond market were very good from 2013, continually beating out equitites and the S&P index. As investors became more knowledgeable about the asset class, capital continued to be attracted to ILS. Bermuda became the natural fit for this growth due to its location, robust catastrophe market, business-friendly regulatory framework and knowledgeable professionals on the ground. Dedicated ILS asset managers began setting up in Bermuda and the markets that were already in Bermuda turned their sights on how best to work with the capital interest and in-flows.

The Bermuda Business Development Agency’s (BDA’s) first study on Bermuda’s ILS market in 2016 confirmed what those in the industry had known for several years—Bermuda enjoys a dominant position in each of the three key pillars of the global market: insurance-linked fund managers and funds, insurance-linked assets, and service providers that work with both the managers and the assets.

Where are we now?

As of September of this year, ILS listings on the BSX have surged and currently stand at $34.5 billion, reflecting exponential growth. From a standing start in 2009, the BSX is now the global leader in ILS listings with more than 80 percent of global market share outstanding. More recently, foreign listings originating in London and Singapore are listed on the BSX, as many sophisticated investors are familiar with Bermuda’s expertise and regulatory environment.

Fast-forward to 2019 and the vernacular is “partner capital”. As the Association of Bermuda Insurers and Reinsurers (ABIR) aptly declared a couple of years ago, we have converged. Traditional reinsurers are now relying on and partnering with this efficient capital to grow, manage and scale their own operations.

As a result, the majority of reinsurers in Bermuda are partnering with the capital base in some way, either through their own asset managers (eg, Alpha Cat/Validus, Nephila/Markel, Kiskadee/Hiscox, DaVinci/RenRe, etc), sidecars and quota shares, or simply making strategic use of the capacity.

The mission of ILS Bermuda has always been to ensure that the capital and the talent comes to Bermuda. As an industry group, our goal is to grow the business coming to Bermuda and facilitate the development of new innovative risk solution products and expand the risk pie. In earlier days there was some scepticism around ILS and the perception of a potential threat to the traditional reinsurance space. A certain “us against them” mentality prevailed. However, in 2019 the stripes and the spots have formed a new animal and we anticipate this evolution will continue in the coming years. We now have ILS investors starting their own more efficient rated entities, and we have platforms emerging that will likely enable an even more streamlined transfer of risk to capital. All of this is centred here in Bermuda, the hub for innovation in risk transfer.

Bermuda is home to over 20 ILS asset managers and the number is growing. Several asset managers are setting up “captive” rated reinsurers instead of “renting” another’s balance sheet. Cedants view this capital as permanent and trustworthy, a source of comfort after the ILS market was tried and tested by the natural catastrophes of 2017 and 2018, and claims were managed and paid in an orderly fashion.

We now look to this efficient capital base to solve some of the biggest and most challenging risks, and see the opportunity to narrow the amount of uninsured or underinsured risks around the world—the so-called “protection gap” which is estimated to total $180 billion or more. Addressing uninsured and underinsured risks will help to build resilience for emerging and developed countries and corporate entities, as well as driving a sustainable impact.

The securitisation of short-tail lines of business other than property-catastrophe (like terrorism, cyber and auto) also offer the ability to diversify risk by peril while narrowing underinsurance or growing risk. With a sophisticated investor base, growing the pie and diversification are met with interest and collaboration between insurance and capital markets and will promote innovative solutions for big challenges.

A key differentiator between Bermuda and other domiciles is the recognition of Bermuda being a “one-stop shop” as well a proven leader in captive insurance, property-cat, weather risk and now cat bond issuance and collateralised reinsurance. A perhaps lesser-known entity with Bermuda connections is known as African risk capacity (ARC). ARC Insurance Company is a hybrid mutual insurance facility domiciled in Bermuda, and assists African member states in reducing the risk of loss and damage caused by extreme weather events affecting the continent’s populations by providing, through sovereign disaster risk insurance, targeted responses to natural disasters outbreaks and pandemics. Bermuda has the expertise, capacity and ability to deliver a wide range of structures and solutions—from captive formation to collateralised reinsurance and weather derivatives.

Today, investors are more informed as they learn more about the asset class and how events play out. Current hot topics with respect to transactions include issues around loss creep, transparency, trapped collateral, model weaknesses and secondary peril surprises like wildfires. This is precisely the reason we see the annual Convergence event in Bermuda as important to the industry, not only for networking but also for frank and open discussion on current topics.

Where next for ILS?

It is evident that we are beyond convergence. The investor base is committed, educated and ready to move beyond property catastrophe risk. The lines between “traditional” and “alternative” have blurred and even formed something new.  

The rapid growth of collateralised capacity has had a dramatic impact on the global reinsurance market. Alternative capacity has assumed a growing percentage of the global catastrophe reinsurance limit and a significantly higher proportion of key segments, such as retrocession and US reinsurance. Collateralised reinsurance has seen the most significant growth.

The BMA is proving itself a mature and forward-thinking regulator as it looks to expand the licensing of ILS-backed vehicles to reflect the evolution and growth of the collateralised reinsurance sector. This year the BMA introduced a new collateralised insurer (CI) class as a result of the increasing scope and sophistication of the ILS and collateralised re/insurance market, including more complex structures and deals.

The view of ILS Bermuda is that we will see a continued push to bring more efficiency to the process of matching risk to capital and investors getting closer to the risk. Innovative platforms have seen success as startups, with the development of seamless technology-driven risk placement with insurance programmes placed on platforms with virtual private data rooms. Insurtech companies are focused on unlocking cyber risk and ILS growth and leveraging their operational experience. Private distributed ledger technology (DLT) initiatives have the capability to revolutionise the way we do business by building efficient, trustworthy, transactional ecosystems.

With the collateralised reinsurance hybrid market continuing to grow and evolve, Bermuda has emerged as the natural leader for this segment because we are an actual market with intellectual capital on the ground and innovation in our collective DNA. We expect to see Bermuda continue to lead in the industry’s transformation.

These are exciting times for ILS and Bermuda promises to be at the epicentre for the foreseeable future. We can’t wait to see what new “animals” emerge!

ILS Bermuda, Kathleen Faries

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Where ILS and ESG intersect http://www.ilsbermuda.com/news/where-ils-and-esg-intersect/ Wed, 02 Oct 2019 14:15:34 +0000 http://www.ilsbermuda.com/?p=4996 The Bermuda Stock Exchange has launched an environmental, social and governance initiative that aims to enable sustainable and responsible growth for its member companies and […]

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The Bermuda Stock Exchange has launched an environmental, social and governance initiative that aims to enable sustainable and responsible growth for its member companies and the wider community. Greg Wojciechowski caught up with Intelligent ILS to explain what this means for the exchange and the ILS markets.

What does ESG mean?

ESG stands for environmental, social and governance. ESG criteria are standards for a company’s operations that investors use to screen potential investments.

Environmental criteria consider how a company’s operations impact the natural environment and climate. Social criteria examine how a company manages relationships with employees, suppliers, customers and the communities where it operates.

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Swiss pensions allocate more to ILS, increasingly a core alternative asset http://www.ilsbermuda.com/news/swiss-pensions-allocate-more-to-ils-increasingly-a-core-alternative-asset/ Tue, 17 Sep 2019 13:20:20 +0000 http://www.ilsbermuda.com/?p=4962 Pension funds in Switzerland have continued to increase their allocations to insurance-linked securities (ILS) and reinsurance linked investments, with the ILS asset class becoming a […]

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Pension funds in Switzerland have continued to increase their allocations to insurance-linked securities (ILS) and reinsurance linked investments, with the ILS asset class becoming a core alternative investment for some of them.

With Switzerland being home to a number of specialist insurance-linked securities (ILS) fund managers, as well as a vibrant reinsurance marketplace, it’s no surprise the countries pension funds are among the most familiar with and accepting of the ILS asset class.

According to data gathered in a survey by Swiss pension investments consultancy Complementa, which polls the domestic pension fund market each year, the allocations being made are increasing, while at the same time some pensions now position ILS as one of their top alternative asset investments.

In total, across 497 pension surveyed that between them managed roughly US $650 billion of assets across their balance-sheets at the end of 2018, of which ILS and reinsurance linked assets were a growing component.

ILS investments made up 1.1% of Swiss pension funds total assets at the end of last year, which is a reasonable amount at over US $7.14 billion.

Impressively, 30% of pensions polled hold some investments in ILS or reinsurance linked assets, while the overall percentage of assets deployed into the ILS asset class rose from 0.5% of total Swiss pension assets in 2014 to the 1.1% of assets seen at the end of last year.

Complementa noted that continued low interest rates have helped to boost the popularity of ILS among Swiss pensions, which given the outlook is that the low interest rate environment will likely persist for another few years at least bodes well for continued inflows.

ILS are particularly popular with the smaller pension funds in Switzerland, Complementa explained, given they are comparatively easy to access.

This is thanks to the availability of professional ILS fund managers and the density of ILS related investment operations in Switzerland, which helps to ensure that the countries pension investors get to understand the ILS asset class and are introduced to the options within it more readily than is perhaps seen in some other countries.

In fact, among the smaller group of pension funds in Switzerland, ILS is now the most popular of the alternative asset classes, Complementa’s survey found.

Overall, across all sizes of pension funds in Switzerland, ILS investments now make up 11% of total allocations to alternative asset classes, a figure that is likely to increase over time.

Smaller and  mid-sized pension funds in Switzerland on average allocate roughly 1.3% of their total assets to ILS, where as the largest pensions only allocate 1.1%.

As Switzerland is the home of some of the largest independent and asset manager linked ILS fund management units, pensions in the country are expected to grow their allocations to the asset class over time as ILS becomes increasingly core in the alternative allocations they make.

To read more articles like this one, visit Artemis.

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ILS issuance to “materially increase” in coming months: Jean-Louis Monnier, Swiss Re http://www.ilsbermuda.com/news/ils-issuance-to-materially-increase-in-coming-months-jean-louis-monnier-swiss-re/ Thu, 12 Sep 2019 14:56:36 +0000 http://www.ilsbermuda.com/?p=4958 Insurance-linked securities (ILS) and catastrophe bond issuance is likely to “materially increase” over the next nine months, according to Jean-Louis Monnier, Head of Retro & […]

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Insurance-linked securities (ILS) and catastrophe bond issuance is likely to “materially increase” over the next nine months, according to Jean-Louis Monnier, Head of Retro & ILS Structuring and Origination at global reinsurance firm Swiss Re.

Monnier expects that with the ILS market being relatively stable following two years of catastrophe losses, albeit with investors still digesting their impact, the market is set to return to growth in the coming months.

“We expect issuance to materially increase over the next 9 months in the face of renewed capital raising and high cat bond redemptions,” he said to us during a recent interview.

But ILS investors are likely to move forwards with a much greater understanding of the risks associated with backing insurance and reinsurance contracts, after the experience of the last two years, the resulting losses and loss creep.

Monnier explained, “Based on historical analysis, one would expect loss development for 2017 and 2018 US wind events to be largely behind us. We believe investors will factor in such development uncertainty in the future, making a qualitative and quantitative assessment of the typical loss development for a given peril, the general claims process in the affected market and a ceding insurer’s approach to reserving.”

The experience may also lead to ILS funds adjusting their approach to reserving as well, he continued, saying, “They may also be more conservative in the way they side-pocket potentially exposed bonds to ensure liquidity in their funds.”

The loss experience has resulted in investors doubling-down on their core catastrophe exposures and so in some cases slowed the expected expansion of ILS into new lines, but this is expected to return.

“In 2019, some investors became more prudent and essentially focused on core nat cat exposures in order to avoid a surprise loss from new risks or harder to model perils affecting performance. We expect appetite for new perils to return in 2020,” according to Monnier.

On the subject of trapped collateral, Monnier believes the catastrophe bond structure performed as expected, while it was more of an issue for reinsurance related ILS contracts.

He explained, “Trapped collateral is an issue for both cedants and investors. There is no question that, following an event, collateral needs to be adequately trapped to allow for loss development and due payment under the contract. The problem arises during the extension period and the multi-year nature of cat bonds means that it was less of an issue in ILS compared than versus Collateralised Re. Cat Bond standard extension thresholds have, by and large, performed as expected.”

Looking ahead, Monnier is bullish on the prospects for cat bond and ILS issuance.

“We are optimistic on the ILS market for 2020 and beyond, provided no significant events will happen,” adding “We see a very healthy pipeline in the year ahead.”

He continued to explain, “We see growth in underlying insurance exposures and a potential reduction in protection gap leading to an increase in demand for capacity.

“Higher pricing should also start attracting new capital. We see a continued flight to quality as investors become more sophisticated and put greater focus on the qualitative aspects of a cedant’s portfolio and ability to handle claims. This will lead to more differentiated terms for both cat bond and sidecar sponsors with top cedants benefitting most from their established franchise.”

To read more articles like this one, visit Artemis.

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Recent Scientific Advancements Show New Connections Between Climate Change and Hurricanes http://www.ilsbermuda.com/news/recent-scientific-advancements-show-new-connections-between-climate-change-and-hurricanes/ Tue, 10 Sep 2019 16:13:03 +0000 http://www.ilsbermuda.com/?p=4943 With Hurricane Florence making landfall in the Carolinas, Super Typhoon Mangkhut headed for the Philippines, and Hurricanes Harvey, Irma and Maria fresh in our minds, many are asking […]

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With Hurricane Florence making landfall in the Carolinas, Super Typhoon Mangkhut headed for the Philippines, and Hurricanes Harvey, Irma and Maria fresh in our minds, many are asking what role climate change is playing in these disasters.

Scientists have known for years that global warming can exacerbate storms. But our understanding of the connection between hurricanes and climate change has evolved significantly in just the past year.

Here’s what the cutting-edge science shows:

Warming Can Lead to Slower-Moving Hurricanes

If storms hover above an area of land for long periods of time, they continue to dump rain, amplifying the risk of flooding. Very recent research has established a connection between warmer temperatures and the slowing of hurricane movement. A recent study in Nature found that from 1949 to 2016, the speed of tropical cyclones declined by 10 percent globally; North Atlantic tropical cyclones slowed down 20 percent over land areas during the same period. This slowing is part of the reason Hurricane Harvey caused so much damage when it stalled over Texas last year and is of significant concern as Florence comes ashore.

Storms Are Moving Poleward

Scientists suspect that human-caused warming can help explain why the latitude of where tropical cyclones reach their peak intensity has moved 53 and 62 kilometers poleward per decade in the Northern and Southern hemispheres, respectively, away from the tropics. While there has yet to be any signal of migration of storm intensity in the Atlantic, this migration is occurring in other ocean basins, especially the Pacific and South Indian Oceans. Regions that are further away from the equator could see an increased risk of intense storms. On the other hand, those communities closer to the equator, which rely upon tropical cyclone rainfall as freshwater, could see threats to their water supplies.

Attribution

None of the statements above suggest that climate change causes hurricanes. However, it’s becoming more and more clear that a warming climate leads to more devastating hurricanes.

There have also been tremendous advancements regarding the attribution of specific extreme events being enhanced by climate change. According to Nature, there have been more than 170 scientific studies on attribution of extreme events and climate change published between 2004 and mid-2018. For example:

  • One study found that the unusually active 2014 hurricane season in the Hawaiian islands was substantially more likely due to human-induced warming.
  • In the Western North Pacific, scientists have found that the extreme energy of 2015 cyclone activity was largely caused by sea surface warming in the Pacific Ocean, with human-induced warming increasing the odds that the event occurred.
  • Recent research found that with Hurricane Harvey, accumulated rainfall in the Houston, Texas area increased by an estimated 38 percent due to climate change-induced factors, including an increase in available moisture.
  • Prior to Hurricane Harvey, ocean heat content was the highest on record in the Gulf of Mexico and globally. When Hurricane Harvey came, that ocean heat was lost through evaporative cooling, which was then transferred to the atmosphere as moisture and, in turn, record-breaking heavy rainfall. Researchers say that Harvey could not have been accompanied by so much rain without the influence of human-induced warming.
  • In just the last several days, a group of researchers assessed the role of human-induced warming in Hurricane Florence, notably releasing their findings before the storm hit. Scientists estimated that the projected rainfall would be 50 percent heavier due to warming.

Building on Prior Research

This latest cutting-edge science builds on years of previous research on the connection between hurricanes and manmade warming. According to the 2014 U.S. National Climate Assessment, the intensity, frequency and duration of hurricanes in the North Atlantic, as well as the frequency of the strongest hurricanes, has increased since the early 1980s. And it’s projected to worsen—models suggest that with 2 degrees C (3.6 degrees F) of global temperature increase, average rainfall rates are projected to increase 10-15 percent within 100 kilometers of a storm.

While we may not see an overall higher frequency of storms over the long term, climate change can make them more devastating, with higher rainfall rates, more intensity, and higher storm surges driven by sea level rise. When climate impacts are combined with increased vulnerability as populations and the built environment grow and creep closer to the coast, this can spell disaster.

While the science will continue to evolve, we can’t ignore what we already know. We know that we can both reduce the risks associated with climate change by cutting global emissions to safe levels, and by making smart investments to ensure communities and infrastructure are more resilient.

The science has spoken. Now it’s time to act.

To read more articles like this one, visit World Resources Institute.

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Cat bond & related ILS risk capital outstanding hits $40bn for first time http://www.ilsbermuda.com/news/cat-bond-related-ils-risk-capital-outstanding-hits-40bn-for-first-time/ Wed, 04 Sep 2019 13:32:39 +0000 http://www.ilsbermuda.com/?p=4937 The outstanding market for catastrophe bonds and related insurance-linked securities (ILS) has grown significantly in 2019 so far, passing $40 billion for the first time […]

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The outstanding market for catastrophe bonds and related insurance-linked securities (ILS) has grown significantly in 2019 so far, passing $40 billion for the first time according to our data, as interest in mortgage ILS offset slower natural catastrophe bond issuance.

It’s a milestone worth celebrating for the insurance-linked securities (ILS) market, as risk capital outstanding reached a new high of over $40 billion this month, with the pool of insurance-linked investment opportunities and use of the cat bond structure expanding all the time.

Issuance of mortgage insurance-linked securities (ILS), where mortgage insurers securitize their policy risks and transfer them to the capital market to source reinsurance protection for their books, has helped dramatically.

In fact, it is largely mortgage ILS that has contributed the growth needed to take our measure of catastrophe bond and related ILS risk capital outstanding, based on the transactions recorded in the Artemis Deal Directory, to this new high.

In reaching the almost $40.1 billion of risk capital outstanding figure, the cat bond and related ILS market has grown by an impressive near 7% over the course of 2019 so far (click the chart below to analyse the data) and up around 12% in the last year.

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So far in 2019 we’ve recorded over $7.7 billion of issuance, across 144a catastrophe bonds, private cat bond lite deals and the mortgage ILS transactions.

But within that 2019 issuance figure, the mortgage insurance-linked notes or mortgage insurance-linked securities (ILS) deals have accounted for almost half, at $3.675 billion year-to-date.

The other $4 billion or so is made of up of full Rule 144a catastrophe bonds and other property related cat bond lite or private ILS deals.

While $4 billion is far below the issuance levels seen by this stage of the year in the last few, it’s still impressive, we feel, given the catastrophe loss impacts faced by the market and the general reinsurance re-pricing that has been going on.

Mortgage insurance-linked securities (ILS) currently make up 13% of the outstanding market, according to Artemis’ data (analyse the data here).

To read more articles like this one, visit Artemis.

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Climate risk data needs linking to insurance & risk-transfer process http://www.ilsbermuda.com/news/climate-risk-data-needs-linking-to-insurance-risk-transfer-process/ Mon, 19 Aug 2019 19:04:54 +0000 http://www.ilsbermuda.com/?p=4913 Climate risk data should be linked to the insurance, reinsurance and risk transfer process through the use of technology and risk models, placing it and […]

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Climate risk data should be linked to the insurance, reinsurance and risk transfer process through the use of technology and risk models, placing it and financial products at the heart of climate adaptation and resilience efforts.

A new background paper from academics and insurance sector specialists highlights the importance of continued collaboration between the re/insurance and risk transfer industry with state policy makers.

This should include more investment in open-source risk models, the academic work suggests, which alongside greater collaboration can improve society’s ability to recover from disasters linked to climate change.

The paper is not groundbreaking, but it serves as another important reminder that insurance and more broadly risk transfer, including insurance-linked securities (ILS), have a vital role to play in helping to enhance resilience and society’s ability to respond to climate related disasters.

It has always been our view that by leveraging climate data (and weather or catastrophe data) and improving our understanding of it using advanced technology such as risk models, financial products can become more responsive and better linked to the reality of our climate, environment and lives today.

Insurance, reinsurance, ILS and risk transfer are a set of hedging tools that can provide financial protection and smooth climate related financial volatility, for governments, corporations, communities and people across the globe.

But in order to better link the outcomes of financial protection with the climate related risks they are designed to protect us against, work to better integrate risk transfer into our adaptation and resilience efforts is required.

Putting data at the heart of these efforts is vital, in our view.

The paper’s authors highlight the need for society to:

1. Invest in open-source models that provide a long-term view of climate risk and link to insurance solutions.

2. Joined-up policy-making to put climate-risk models at the heart of national adaptation strategies.

3. Develop consistent climate adaptation regulation and standards across countries.

4. Foster insurance innovations that can respond to a changing climate risk landscape.

5. Strengthen dialogue between insurers and policy-makers around Build Back Better.

6. Converge insurance, humanitarian and development agendas.

7. Promote and invest in risk literacy throughout society

The paper’s first recommendation is that improved risk data and analysis of the impact of climate change will enable modelling of the frequency and severity of climate events, as well as the potential financial losses attributed to them.

“The data should then be modelled according to differing projections of the rate of climate adaptation: in other words, by different estimates of how much the vulnerability of the natural and built environment may have been reduced, over various periods of time,” the authors explain.

“This will ensure that climate risk data, covering both a near-term and long-term view of climate adaptation, can be linked to insurance and the risk-transfer process.”

They recommend that risk models created with the data remain open and widely available, rather than proprietary and closed to many outside of specialist industries such as insurance.

“This will ensure that they can be used to support public and private insurance mechanisms, including the piloting of insurance innovations, without the pressure to recoup costs from commercial transactions,” explained lead author of the paper Professor Paula Jarzabkowski.

Additionally she commented, “We need joined-up policy-making between treasury, environment and disaster-management divisions within government. These divisions must also work collaboratively with development agencies to put climate risk data at the heart of national adaptation strategies.”

The paper also calls for consistent international standards for climate adaptation regulation, which the authors say could be established by the International Monetary Fund or a similar supra-national actor.

Explaining, “Consistency across countries is important as sound climate-risk insurance typically requires an appropriate balance between retaining risks in-country, and transferring to globally diversified international markets.”

Going back to basics on climate risk transfer, addressing issues within the insurance product itself, to create something more responsive and in tune with the way lives and businesses work today can produce better outcomes, we believe.

Making the climate risk transfer product set data-driven and informed by advanced risk models is a key part of this process.

As too are a focus on cost and efficiency, to deliver climate risk transfer and insurance products more accessible and effective for all.

This paper sets out a good intro to many of the issues that hold back development and broader adoption of climate risk transfer tools, including insurance and reinsurance, providing advice that industry and policymakers alike will want to explore.

To read more articles like this one, visit Artemis.

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Apex commits to ESG http://www.ilsbermuda.com/news/apex-commits-to-esg/ Fri, 26 Jul 2019 14:48:58 +0000 http://www.ilsbermuda.com/?p=4894 Bermudian-based global financial services provider Apex Group Ltd has signified its commitment to become a leader in the ESG (environmental, social and governance) investment services space. Apex has announced the launch of a new ESG data and rating service, Apex GreenLight ESG Ratings, and has appointed a global head of […]

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Bermudian-based global financial services provider Apex Group Ltd has signified its commitment to become a leader in the ESG (environmental, social and governance) investment services space.

Apex has announced the launch of a new ESG data and rating service, Apex GreenLight ESG Ratings, and has appointed a global head of ESG product to drive development.

As Apex continues to expand its capabilities to meet client demand across financial services the launch of GreenLight demonstrates the firm’s ongoing focus on ESG innovation, the company said. GreenLight will deliver an in-house developed ESG rating evaluating privately held companies globally, unlocking unique market intelligence and delivering unprecedented access to a previously opaque asset class.

Amara Goeree has been appointed as the group’s global head of ESG product and will lead the firm’s product development and go-to-market strategy, the company said. Ms Goeree is a sustainability specialist with almost a decade’s experience in ESG innovation within financial services.

Most recently, she was head of corporate sustainability and responsible investment at Julius Baer, the private bank. She also acted as deputy head of the team leading the ESG ratings process for the Dow Jones sustainability index at RobecoSAM AG.

To further show its commitment to ESG, Apex is currently in the process of becoming a UN Principles for Responsible Investment signatory, the company said.

Peter Hughes, founder and chief executive officer of Apex Group Ltd, said: “This product builds on our leading position in the private equity and real estate administration sector where data analytics is one of our key differentiators. GreenLight will deliver insights into private companies that investors were unable to access previously.”

He added: “For Apex, this product is just the start of the ESG revolution we hope to pioneer across financial services, enabling us to make a positive impact on the world. We envision a future in which a company’s ESG score is as important as its credit score.”

Ms Goeree said: “Over the course of my career, I’ve seen ESG and sustainable finance develop from a niche and conviction-based topic into a top priority for all investment firms.

“This new framework will pave the way for all types of companies, across all industries, to understand and accurately assess their ESG contribution.”

Established in Bermuda in 2003, Apex has more than 40 offices worldwide and 3,000 employees. The company has a broad range of clients spanning asset management, allocators and financial institutions.

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Arch’s record $701m mortgage ILS puts it at “forefront of managing capital & risk” http://www.ilsbermuda.com/news/archs-record-701m-mortgage-ils-puts-it-at-forefront-of-managing-capital-risk/ Tue, 16 Jul 2019 14:44:54 +0000 http://www.ilsbermuda.com/?p=4891 The completion of Bermuda-based re/insurer Arch Capital Group Ltd.’s latest and largest mortgage insurance-linked securities (ILS) transaction seen to-date, a $701 million Bellemeade Re 2019-3 Ltd. shows […]

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Arch Capital Group

The completion of Bermuda-based re/insurer Arch Capital Group Ltd.’s latest and largest mortgage insurance-linked securities (ILS) transaction seen to-date, a $701 million Bellemeade Re 2019-3 Ltd. shows the firm is at the “forefront” when it comes to managing capital and risk, an executive said today.

Arch Capital Group has become a significant user of capital markets backed reinsurance protection for its growing mortgage insurance book underwritten by Arch Mortgage Insurance (Arch MI).

Arch Capital has now successfully placed its third mortgage insurance-linked notes issuance of the year, tapping the capital markets to expand its collateralized mortgage reinsurance protection to now just under $4 billion.

Bellemeade Re 2019-3 Ltd. was established to issue four tranches of mortgage insurance-linked notes, each of which have now been priced and sold to institutional investors, with the proceeds used to collateralize underlying reinsurance agreements between the issuer and Arch Capital itself.

The transaction achieved its targeted size of $700.92 million, making this Bellemeade Re 2019-3 mortgage ILS transaction the largest from Arch to-date and also the largest mortgage ILS transaction we’ve recorded so far (details on all the mortgage ILS we’ve covered can be found here).

Commenting on the successful issuance, Jim Bennison, EVP, Alternative Markets for Arch Capital Group (U.S.) Inc., explained, “Since the inception of the Bellemeade ILN program, one of our goals has been to transfer a portion of the risk across the entire U.S. mortgage insurance portfolio, which we’ve now largely achieved.

“With over four billion dollars of aggregate reinsurance protection on our portfolio, we believe we’re at the forefront of managing capital and risk in the mortgage insurance industry.”

This is without a doubt the case, as Arch and its mortgage insurance subsidiaries have now issued close to $4.2 billion of mortgage ILS transactions across nine transactions (details on all the mortgage ILS we’ve covered can be found here), with still just a little under $4 billion of collateralized reinsurance still in-force from these catastrophe bond like deals.

We actually think the way Arch has set up its mortgage insurance business, to source risk efficiently and pass it off to the most appropriate capital, leveraging the capital markets and using technology as well, is a sign of the future for other lines of business.

Arch noted the transaction is the “the largest individual ILN ever conducted by a mortgage insurance company.”

The deal provides Arch with exactly $700,920,000 of indemnity reinsurance on a pool representing $49.6 billion of mortgages, with the portfolio of MI policies linked to 219,994 loans issued by Arch MI and affiliates in 2016.

Arch also disclosed the pricing of the four tranches of mortgage insurance-linked notes, explaining that the $222.809 million of class M-1A notes priced with a coupon of one-month LIBOR plus 110 basis points, the $278.511 million of class M-1B notes at LIBOR plus 160 basis points, the $176.39 million of class M-1C notes at LIBOR plus 195 basis points, and the $23.21 million of class B-1 notes priced at LIBOR plus 250 basis points.

You can read all about this new Arch sponsored Bellemeade Re 2019-3 Ltd. mortgage insurance-linked securities (ILS) transaction to our Deal Directory.

To read more articles like this one, visit Artemis.

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