ILS Bermuda http://www.ilsbermuda.com Access to the latest information from global leaders in the ILS market in Bermuda Fri, 22 May 2020 13:33:47 +0000 en-US hourly 1 https://wordpress.org/?v=5.4.1 Markets Work: How Bermuda Stock Exchange Is Navigating COVID-19 http://www.ilsbermuda.com/news/markets-work-how-bermuda-stock-exchange-is-navigating-covid-19/ Fri, 22 May 2020 13:33:40 +0000 http://www.ilsbermuda.com/?p=5206 Nasdaq is committed to the resiliency of the global market ecosystem during this time of unprecedented change in our industry. Our Market Technology community, which includes market infrastructure […]

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Nasdaq is committed to the resiliency of the global market ecosystem during this time of unprecedented change in our industry. Our Market Technology community, which includes market infrastructure organizations spanning more than 50 countries, is truly keeping markets up and running. With exchanges laying the foundation for capital formation and job growth, these organizations will continue to play a critical role in the health and recovery of local economies around the world and greater global capital markets ecosystem.

Greg Wojciechowski

We sat down with Greg Wojciechowski, President & Chief Executive Officer of Bermuda Stock Exchange, to discuss how his exchange is managing the current environment for their stakeholders, members and employees.

1. How is COVID-19 affecting your client base? 

When restrictions were first implemented in Bermuda in mid-March, there was an initial phase of adjusting to social distancing and working remotely. Having now operated under these restrictions for almost two months, we have adapted to what is likely to be the new normal for the foreseeable future.

For the most part, it is business as usual at the exchange, and we continue to list new securities, support daily trading, settlement and to operate our securities depository. The BSX was an early adopter of FinTech and has been a fully electronic exchange since our inception in 1993.

With our exchange platform being fully electronic and our securities being dematerialized and held in electronic book-entry form, addressing business interruption and resiliency was more or less built into the platform from the beginning. As a result, we were prepared to address business interruption from events such as COVID-19 with minimal impact on our robust operating systems, which have proven efficient during this unusual period of market operation.

2. Are you changing how you interact and communicate as a result?

With air travel severely restricted – Bermuda’s airport has been closed since March 20 – we can no longer travel for business meetings and conferences in other countries. As with many organizations around the globe, we are using internet-based platforms for virtual meetings and taking calls as normal. We implemented our business continuity plan early in the crisis, and some of our staff have exemptions from the ‘stay in place’ restrictions applied by the Bermuda Government and can work from our office location in Hamilton. Most of our staff, however, are working from home and have highly secure access to our business operating systems online.

As an example of adapting to restrictions on normal operations during the COVID-19 state of emergency, listed Issuers are able to submit documents for filings electronically that would normally have been filed in original, signed or certified form.

3. How are your systems impacted by the current environment, and how do you prepare for this type of situation to help ensure a resilient, operational environment?

We have experienced minimal operational impact. Bermuda is no stranger to dealing with disasters and natural catastrophic events – it’s the business many of our on-island insurance, reinsurance, and alternative risk transfer companies specialize in, and we experience hurricanes with some frequency due to our geographic location.

Bermuda has robust infrastructure that has been tried and tested, so when the COVID-19 Pandemic restrictions began, companies on the island implemented their disaster recovery and business continuity plans to ensure minimal operational disruption. As a stakeholder and critical component of Bermuda’s financial services infrastructure, the BSX also continues to stress-test its resiliency and adapt business continuity plans as warranted by evolving underlying market conditions. 

The BSX and Bermuda are tightly aligned with the philosophy of market operators globally and, as a member of the World Federation of Exchanges (WFE), adheres to the philosophy the WFE outlined in March, namely that ‘Financial markets provide businesses with crucial funding, and risk management products and services…. It is important that markets remain open and that the hours of trading remain as normal, to preserve the benefits of price formation and access to liquidity for society.’

4. What are some of the things you’re most happy to have accomplished over the first part of this year amidst a truly chaotic market environment?

Firstly, the speed and efficiency with which we implemented business recovery and continuity of the exchange’s operations due to the COVID-19 Pandemic.

While the BSX has concentrated on organic growth and developing the foundation of the exchange, we have also been focused on our electronic exchange environment, helping our domestic capital market develop and gain international recognition so that we are appropriately regulated and recognized to support future development.

The BSX is the world’s leading exchange for the listing of Insurance-linked Securities (ILS) – a US$40+ billion market at the end of 2019 – with approximately 85% of the market cap global issuance outstanding. The exchange continues to see more catastrophe bond listings and has demonstrated the ability to provide visibility, information, and regulation to the ILS asset class. The Pandemic has confirmed the non-correlation and resiliency of ILS vehicles to broader financial market shocks and volatility. The BSX’s track record in this sector has led to the recognition that the exchange is a global leader in supporting exchange-traded risk.

It’s a logical and natural evolution that the continuing convergence of capital markets and the insurance industry occurs in Bermuda, which for many years has been known as the ‘World’s Risk Capital.’ As momentum builds, the ILS market continues to be attractive for established investors such as pension funds looking for non-correlated risk as well as new investors looking for a hedge against market volatility that looks set to continue into 2021.

We were also pleased to complete the integration of the BSX into the Miami International Holdings (MIH) Group of Exchanges following last year’s successful tender offer resulting in MIH obtaining a controlling interest in the BSX. While advancing MIH’s corporate strategy of geographic expansion to serve a greater portion of international exchange operators, there is also support towards the development of a strategy in the futures and derivatives market in Bermuda. The new relationship with MIH will prove mutually beneficial as Bermuda’s (re)insurance risk transfer industry and the BSX’s contribution to its products and services are strengthened by MIH’s ability to provide additional support and innovative products to the evolving global (re)insurance and alternative risk marketplace.

The BSX has also seen an increase in interest from the global capital markets for an alternative, internationally recognized exchange platform for the listing of international debt instruments, especially from Latin and South America.

Bermuda’s innovative approach, as seen in the reinsurance industry, has also been reflected in the development of regulatory strategies to provide the market with certainty in the digital asset area illustrated by the implementation of the Digital Asset Business Act (DABA) and ICO legislation. The BSX is in the process of leveraging this important legislation to support market participants in this developing area.

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London’s ILS development hampered by bureaucracy: London Matters report http://www.ilsbermuda.com/news/londons-ils-development-hampered-by-bureaucracy-london-matters-report/ Wed, 20 May 2020 13:07:56 +0000 http://www.ilsbermuda.com/?p=5202 London’s efforts to develop a market for insurance-linked securities (ILS) has been “hampered by bureaucracy” according to a new report from the market-wide body that […]

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London’s efforts to develop a market for insurance-linked securities (ILS) has been “hampered by bureaucracy” according to a new report from the market-wide body that represents the London specialist commercial insurance and reinsurance sector.

The London Matters 2020 report from the London Market Group (LMG) and consultancy McKinsey explains that London was reacting to a perceived threat from offshore insurance-linked securities (ILS) domiciles when it launched its own UK insurance-linked securities (ILS) regulatory and tax framework in time for the 2018 underwriting year.

But while these arrangements are seen as “globally competitive” the London Matters 2020 report acknowledges that London and the UK’s ILS ambitions have been held back.

“ILS development has been hampered by bureaucracy, applications being seen as rather onerous and costly,” the report explains.

Adding that, “As a result, not all insurers, reinsurers and fund managers are persuaded that operating through a UK-based risk transformation vehicle is as cost efficient and flexible as that in other countries.”

So far just a handful of issuances have been transacted in the UK using this ILS regulatory and tax regime, including two Atlas catastrophe bonds from French reinsurance firm SCOR (Atlas Capital UK 2018 PLC (Series 2018 ISPV 1) and Atlas Capital UK 2019 PLC (Series 2019-1)), the first terrorism risk catastrophe bond sponsored by Pool Re (Baltic PCC Limited (Series 2019)), as well as Neon’s collateralised reinsurance sidecar that was placed and also renewed, and Brit’s multi-use Sussex Capital collateralised reinsurance Protected Cell Company (PCC) vehicle established in the UK. One other protected cell company, Fuchsia Capital was also registered for re/insurer Beazley, but to-date hasn’t been used.

The last cat bond issuance was now one-year ago and SCOR has now returned to Dublin, Ireland for its latest catastrophe bond transaction in 2020, perhaps a reflection of the more onerous process in London up to now.

But the London Matters 2020 report suggests that the situation is likely to improve going forwards, citing the following reasons.

First, the UK government is said to be “actively engaged in the ILS market and is working on improving it” which is essential for the process to match the speed of issuance sponsors look for in other domicile locations.

In addition, the report says London can access global insurance and reinsurance markets, “not just those in North America (which, to date, have fed ILS in Bermuda and other markets).”

This isn’t really an accurate statement, as it is the ILS market’s focus on U.S. property catastrophe risks that has driven issuance, not the fact Bermuda is adjacent to it.

In fact, Bermuda has played host domicile to numerous transactions from across the world over the years and now we even see the emerging Singapore ILS market playing host to transactions featuring risks from the United States as well.

London is clearly well-connected and has the world’s largest dedicated insurance and reinsurance market, but it’s important to be factual about the reasons for a U.S. concentration of catastrophe bonds, part of which is down to traditional market dynamics and ILS investor appetite for peak catastrophe zone risks that pay an adequate return.

The report says “this gives London a competitive edge,” which again is true, but doesn’t necessarily mean we’ll see a flurry of diversifying, non-cat ILS deals in the UK.

In addition, the report cites the spread of business across life and non-life in the London market, which is again a positive but isn’t itself a guarantee of diverse ILS issuance coming to market as this will be driven to a degree by what investors want access to and what works from a cost-of-capital perspective.

The report also claims that London’s ILS regime is more advanced as it allows multiple-issues from a single structure, saying that this is “an important design difference” between its regime and Bermuda’s.

But of course ILS funds have been transacting collateralised reinsurance in multi-use vehicles in Bermuda for a long time already, maybe not in the same structure, but it seems inaccurate to claim it hasn’t been happening.

Finally, the report cites the fact most ILS marketplaces are offshore, which it says can “create additional cost and complexity due to some countries’ restrictions on transacting with offshore territories.”

“London ILS business does not incur such costs,” the report explains.

Which is definitely beneficial for many sponsors. But, reducing costs in one area of the ILS issuance process is currently offset by the increased bureaucracy, onerous application process and slower time to market currently seen in the UK.

For London to really gain ILS market traction it is going to take the process being made easier, less onerous and better designed to match both cedent and investor needs.

A competitive offering needs to match domiciles like Bermuda and Singapore, in terms of speed to market, while also offering a tax neutral approach for the end-investors.

It would also likely help to focus on what ILS funds and investors really want, rather than driving the initiative from the point of view of the London market itself.

The upshot is that ILS is not going away and the London market uses a significant amount of ILS capacity itself, transacting in offshore domiciles to access it in many cases.

Make the transacting of ILS work just as efficiently in the UK and deals will certainly follow, removing the bureaucracy is certainly a good first step.

Then allow ILS market participants to work out how to benefit from new found direct access to the world’s largest insurance and reinsurance marketplace, rather than trying to force a certain way of working designed to suit London’s re/insurance community onto them.

To read more articles like this one, visit Artemis.

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Covid-19 pandemic “showcased” value of cat bonds to investors: S&P http://www.ilsbermuda.com/news/covid-19-pandemic-showcased-value-of-cat-bonds-to-investors-sp/ Wed, 20 May 2020 13:00:24 +0000 http://www.ilsbermuda.com/?p=5199 Catastrophe bonds are expected to face increasing investor demand over the coming months, as during the Covid-19 pandemic these instruments have “showcased” their benefits to […]

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Catastrophe bonds are expected to face increasing investor demand over the coming months, as during the Covid-19 pandemic these instruments have “showcased” their benefits to global investors once again, according to S&P Global Ratings.

Prime among the features of catastrophe bonds that have been showcased, is once again the relatively uncorrelated nature of cat bonds and broader insurance-linked securities (ILS) to movements of the wider financial markets and equities in particular.

Direct investments into insurance and reinsurance risk-linked returns holds little to no correlation.

Yes, at the far extreme tail of scenarios, correlations can always manifest, which is why ILS, collateralised reinsurance and cat bonds should always be explained to investors as relatively uncorrelated (nothing comes with a guarantee of zero correlation).

But even under the stresses of the Covid-19 coronavirus pandemic, catastrophe bonds have once again performed admirably through the decline of most other asset classes, being down only slight and largely on a mark-to-market basis due to selling pressure, most of which is now being recovered.

At the same time, the issuance market for new catastrophe bonds only paused for around two weeks, then recovered and since then rates have increased in alignment with the higher cost of global investor capital at this time.

This shows a healthy and functioning marketplace, something major institutional investors look for in asset classes, even the private or alternative classes that are gaining in popularity at this time.

S&P Global Ratings said in a new report that, “The COVID-19 pandemic has showcased the value of publicly traded catastrophe bonds (cat bonds) to investors, offering a liquid asset class that was not correlated with the current volatile financial markets.”

Another reason that the pandemic served to showcase the fully securitised catastrophe bond as an attractive investment asset, is the fact that cat bond triggers are generally not exposed to pandemic risks and also do not tend to cover commercial property exposures, so are remote from the business interruption (BI) risks that other areas of reinsurance and also some ILS strategies are facing.

S&P notes that, “Although there is a chance that pandemic risks could spill over into some reinsurance contracts, the transparency of the triggers in catastrophe bonds should protect investors.”

Catastrophe bonds, “Usually protect against specific named perils across different regions and cover predominantly residential risks, with limited exposure to commercial business. Hence, we do not expect investors in cat bonds to suffer significant losses as a result of COVID-19,” S&P further said.

Because of the strict terms and coverage that catastrophe bonds usually provide, investors in cat bond funds stand as some of the least exposed to any of the potential business interruption related litigation risks that could hang over certain ILS strategies and vehicles.

As we explained just last week, cat bond funds and investors continue to push for certainty in the coverage they provide, as evidenced by the updating of the latest catastrophe bond sponsored by insurer USAA to include a full pandemic exclusion in its terms.

Add to the lack of correlation and the generally greater certainty in terms of risks assumed and coverage offered, the fact that catastrophe bonds are also liquid and investments in them or positions in cat bond funds can be sold or cashed in far more easily than many other ILS and reinsurance linked investments.

As the pandemic outbreak began to intensify, investors, “realized the value of their cat bonds to pursue short-term opportunities in equity markets, or converted their cat bond investments into cash to meet liquidity needs for margin calls on foreign exchange hedges,” S&P explained.

The value of this cannot be understated as so many alternative asset classes are illiquid in nature, or extremely hard to find a market for when you want to liquidate some of your holdings.

Catastrophe bonds, meanwhile, have an active secondary market, which although it is over the counter (OTC) is still relatively efficient and offers investors an easier way to buy and sell outstanding securities than in many other investable classes.

S&P does note that the ILS market is likely to continue to expand its remit outside of pure named catastrophe perils, which could in time lead to more of a focus on pandemic risks.

As a result, the chances of correlation emerging at the tail would be likely to increase, should this occur, however the level of pandemic risk and return that is likely to be appealing to catastrophe bond investors would be reasonably remote, on the levels of a Covid-19 outbreak repeat, we believe.

Add to this the fact that pandemic risk would be considered diversifying against catastrophe risks, or other specialty lines insurance and reinsurance perils, and the way cat bond funds are constructed would likely ensure that expansion into pandemic cat bonds would not leave a risk of large drawdowns occurring.

The rating agency believes that investor demand for catastrophe bonds could well increase as the pandemic passes and the world enters a period of releasing lockdowns and getting back more towards some kind of normal.

“Initially, investors may make a trade-off between the lower correlated returns of ILS investments and the potential short-term opportunities in other asset classes,” S&P explains.

But as the need and opportunity changes, investors could flock back to catastrophe bonds it seems, while there could also be some switching of strategy away from the less-liquid private ILS and collateralised reinsurance structures.

“We could see investors’ interest turn from the less public part of the ILS market, such as collateralized reinsurance or sidecars, to the more liquid and transparent cat bond market, while demanding pandemic exclusion at contract renewals,” S&P believes.

With a significant number of cat bonds maturing this year and the pipeline still looking buoyant at this time, S&P believes issuance is likely to remain active through the rest of the year.

However, ILS and cat bond investors are likely to continue demanding higher returns, no matter whether issuance is strong or capital flows in, with the cost-of-capital now definitely higher thanks to the pandemic and the ILS investor market still digesting consecutive years of catastrophe losses.

To read more articles like this one, visit Artemis.

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OFFSHORE BUSINESS UPDATE: BERMUDA http://www.ilsbermuda.com/news/featured/offshore-business-update-bermuda/ Mon, 18 May 2020 14:32:21 +0000 http://www.ilsbermuda.com/?p=5188 In this update, we will provide a rolling overview of how the authorities in Bermuda are continuing to respond to the evolving global COVID 19 […]

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In this update, we will provide a rolling overview of how the authorities in Bermuda are continuing to respond to the evolving global COVID 19 pandemic. In particular we will focus on the impact to filings, ability to conduct searches, certificates of good standing, other relevant searches,  court sessions, travel restrictions and the implications for Economic Substance compliance and residency. In addition we will also provide updates of any other temporary regulatory measures in place that might affect any ‘business as usual’ processes.

John Wasty

PRIMARY CONTACT: John Wasty
GLOBAL PRACTICE GROUP CO-HEAD OF DISPUTE RESOLUTION: BERMUDA
T +1 441 298 3232
Email John

Matthew Ebbs-Brewer

PRIMARY CONTACT: Matthew Ebbs-Brewer
PARTNER: BERMUDA
T +1 441 298 3226
Email Matthew

Bermuda has begun to gradually re-open the Island.  The goal is to reinvigorate the economy while maintaining social distancing to ensure the prevention of the spread of COVID-19.  The Bermuda Government has announced that there will be a phased re-opening of the economy.

The Emergency Powers (COVID-19 Continuing Precautions) Regulations 2020 legislate for protocols governing the first re-opening phase.  Details relevant to international business are as follows:

  • Government offices partially re-opened on Monday 4 May 2020 with skeleton staff and services.
  • Limited cashier counter services are now available at the Transport Control Department, the Tax Commissioner’s Office, and the Government Administration Building.
  • Courts have re-opened with social distancing protocols in place.
  • Businesses where employees can work from home, such as law firms, must still work from home.

1. FILINGS

BERMUDA MONETARY AUTHORITY (BMA)

In line with the Bermuda Government’s directive, the BMA is working remotely.  All correspondence and application requests must be submitted electronically.  The BMA is unable to accept payment via cheques at this time and have requested all payments be made via wire transfer.

In conjunction with the Government’s phased re-opening of Bermuda, the BMA will also initiate a phased return to its physical offices at the appropriate time. The speed and timing of this re-entry will be based exclusively on the safety and wellbeing of the BMA staff.

REGISTRAR OF COMPANIES (ROC)

The RoC issued an updated Industry Notice on 7 May 2020 which sets out the current protocols now that the RoC has begun its phased re-opening. The RoC will continue to accept the submission of electronic applications during this period. As most staff continue to work remotely, the preferred method of contact is by email.

All general registrations and application submissions should be sent via email to both rocdailyapplications@gov.bm and rocaccounts@gov.bm, which will ensure that both the Registration Division and the Revenue Division receive the submissions and so can process it concurrently.

For local and permit companies without the ability to submit their filings and fees electronically by the deadline of 31 March 2020, the Government has instituted temporary emergency measures to extend the deadline to 30 June 2020 and normal penalties have been waived. These measures will be ratified by the Legislature.

REGISTRY GENERAL

The Registry General has advised that a drop box will be set up for filings that require original documents for registration, such as the registration of partnership charges.  Further, the Registry General will be able to conduct searches that are submitted via email but please expect delays.

PARLIAMENTARY REGISTRY

The Parliamentary Registry has begun taking Apostilles on Mondays, Wednesdays and Fridays by appointment only.

2. CAN SEARCHES BE CONDUCTED?

COMPANY SEARCHES

Physical Company Searches of hard copy files are now permitted by appointment only in order to adhere to social distancing guidelines. Search requests may also continue to be submitted using a RoC form via email to rocsearch@gov.bm.

LITIGATION SEARCHES

Searches of all Cause Books have been suspended unless the search is urgent. All Search Praecipes currently filed will not be processed until further notice unless deemed as being urgent.

3. CERTIFICATES OF GOOD STANDING – IF AND HOW THESE ARE BEING CONDUCTED

Requests for certificates of compliance should be submitted to the RoC electronically. If the entity is in compliance the RoC will issue an electronic certificate via email. Once operations have returned to normal, hard copies of the certificates will be available where necessary.

4. COURT SESSIONS AND POSITION (INCLUDING FILINGS AND HEARINGS)

The Registrar for the Courts of Bermuda released a Practice Direction on 1 May 2020 outlining protocols for the transition to enable the Courts to re-open to provide full services with effect from 4 May 2020. The protocols require that persons attending a Court building must wear a face mask and, prior to entering, sanitise their hands and have their body temperature taken by a government official using an infrared touchless thermometer. If a person shows any signs of illness, he or she will not be allowed to enter any Court building.

The following services are suspended until further notice: swearing of affidavits, certifying copies and criminal record checks.

The Magistrate’s Court and the Supreme Court of Bermuda will remain closed until Monday 4 May 2020.

MAGISTRATES’ COURT

All hearings currently listed before the Magistrates’ Court between 4 May 2020 and 15 May 2020 have been adjourned administratively to a date to be fixed.  Regarding the period between 6 April 2020 to 1 May 2020, where parties have appeared before the Courts and have been given dates to reappear, those parties must appear as directed by the Magistrate.  Parties also must appear if a date has been set by way of Summons or by a Magistrate between 6 April 2020 and 1 May 2020.

If an application is extremely urgent, the parties must contact the Magistrates’ Court by email and explain the urgency of the matter.  The presiding Magistrate will determine whether the application is urgent and where it is determined to be so, the parties may be required to attend Court.  Attendance can also be requested to be via telephone or an alternative form of audio visual technology.  Plea Court will be held every day to deal with urgent cases.

The Magistrates’ Court will remain closed to all filings and the public access windows also remained closed until Monday 18 May 2020.  The Cashiers Desk will be open on Mondays, Wednesdays, and Fridays between 9:30am and 12:30pm, however, persons are encourages to make payments via online banking or by credit or debit cards via the telephone where possible.

SUPREME COURT

All hearings currently listed before the Supreme Court between 4 May 2020 and 15 May 2020, that involve witnesses and/or juries have been adjourned administratively to a date to be fixed.  All other matters will remain listed unless the parties are advised otherwise.

If an application is extremely urgent, the parties must contact the Supreme Court by email and explain the urgency of the matter.  The presiding Judge will determine whether the application is urgent and where it is determined to be urgent, the parties may be required to attend Court.  Attendance can also be requested to be via telephone or an alternative form of audio visual technology.

Counsel are strongly discouraged from emailing the Supreme Court with general correspondence and/or pleadings which do not relate to matters of urgency.

The Supreme Court Registries will remain closed to the public until Monday 18 May 2020.  Estate applications which require the applicant(s) to sign and/or swear supporting documents will not be processed.  The Court’s delivery service will also continue to be suspended.

COURT OF APPEAL

The Court of Appeal concluded on 18 March 2020.

5. ANY TRAVEL RESTRICTIONS

A travel ban has been in effect in Bermuda since 20 March 2020.   The travel ban restricts travellers to Bermuda unless the person:

  • belongs to Bermuda,
  • is a resident of Bermuda or a dependent who has permission to reside in Bermuda,
  • is a crew member of a cargo or commercial aircraft,
  • cargo ship, or
  • has written permission from the Quarantine Authority of Bermuda to enter.

All persons entering Bermuda, residents, visitors, and crew, are required to self-quarantine for 14 days from arrival and comply with any further requirements under the Quarantine Act 2017 and the Public Health Act 1949.  Visitors and crew may depart Bermuda if, based on their travel itinerary, their visit was shorter than 14 days if providing they remain asymptomatic

IMMIGRATION

There will be a phased resumption of services at the Department of Immigration.  Immigration staff will communicate with customers via email and telephone as the office will not be open to the public.  In person meetings are possible by appointment only.  A Corporate Services Drop Box and Personal Services Drop Box have been placed at the main entrance of the Government Administration Building.  Applications submitted after 2:30pm will be recorded as received on the next business day.  Documents are no longer available for pick-up from the Collections Desk and will be sent via email instead.

The Department of Immigration will not be accepting new applications during the period of 4 May 2020 until 15 May 2020, and will advise the public when it will be accepting new applications, by 16 May 2020.

6. IMPLICATIONS FOR ECONOMIC SUBSTANCE COMPLIANCE AND RESIDENCY

The RoC has advised that it will take circumstances surrounding COVID-19 into account when assessing compliance with the economic substance requirements pursuant to the Economic Substance Act 2018, and the principles set out in the applicable Guidance Notes. The RoC may therefore take into account situations where meetings or other similar compliance measures are not possible due to necessary travel or quarantine restrictions. Entities should keep careful records of all such circumstances, and should continue in good faith to ensure their ongoing compliance with the economic substance requirements.

To read more articles like this one, please visit Appleby.

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Catastrophe bond & related ILS issuance hits $6.1bn already in 2020 http://www.ilsbermuda.com/news/featured/catastrophe-bond-related-ils-issuance-hits-6-1bn-already-in-2020/ Wed, 13 May 2020 19:59:16 +0000 http://www.ilsbermuda.com/?p=5175 Catastrophe bond and related insurance-linked securities (ILS) market activity remains buoyant despite the impacts seen from the Covid-19 pandemic, with primary issuance already reaching $6.1 […]

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Catastrophe bond and related insurance-linked securities (ILS) market activity remains buoyant despite the impacts seen from the Covid-19 pandemic, with primary issuance already reaching $6.1 billion in 2020, according to Artemis’ Deal Directory data.

Primary market issuance of catastrophe bonds and related insurance-linked securities (ILS) grew by $375 million just this week, thanks to the successful completion of the latest cat bonds from Swiss Re, Lousiana Citizens Property Insurance Corporation and the New York MTA, which took the total over $6.1 billion as of yesterday.

The year started with a record first-quarter of 2020, when Artemis recorded just over $5 billion of risk capital issued across 27 transactions, some $3.9 billion of which was focused on transferring pure catastrophe insurance and reinsurance risks to the capital markets.

The second-quarter was then impacted by the Covid-19 pandemic, that sent financial markets into a decline and impacted investor confidence, which ultimately caused some new catastrophe bond issues to be delayed and a couple to be pulled completely from the market as sponsors opted for traditional reinsurance..

Despite the slowdown and hit to investor confidence, which affected all asset classes globally and not just reinsurance and ILS, we’ve already seen just under $1.06 billion of new cat bond and related ILS issuance completed in the second-quarter of 2020.

Which has taken the total issuance for the year to just above $6.1 billion and catastrophe bond and related ILS risk capital outstanding to over $41.8 billion, according to Artemis Deal Directory data.

catastrophe-bond-issuance-2020

Of the over $1 billion of cat bonds and related ILS already issued in the second-quarter of 2020, $461.22 million of risk capital was from the Operational Re III Ltd. transaction that provides operational risk reinsurance to Credit Suisse, $20 million from a private Eclipse Re Ltd. (Series 2020-02A) cat bond, $200 million from French reinsurance company SCOR’s Atlas Capital Reinsurance 2020 DAC (Series 2020-1) cat bond, $215 million from reinsurance firm Swiss Re’s latest Matterhorn Re Ltd. (Series 2020-3) issuance, $60 million from the Catahoula Re Pte. Ltd. (Series 2020-1) cat bond from Louisiana Citizens and $100 million from the MetroCat Re Ltd. (Series 2020-1) parametric cat bond sponsored by the New York MTA.

Almost $4.5 billion of the cat bond risk capital issued so far in 2020 features property catastrophe risks, while $461 million covers operational risks, $984 million covers mortgage reinsurance risks and $200 million health insurance or medical benefit related risks.

There was an additional $80 million element of extreme mortality retrocesisonal reinsurance coverage issued within Swiss Re’s Matterhorn Re Ltd. (Series 2020-2) back in February, but the tranche in question also covers named storms so is dual-purpose.

It’s worth noting the uptick in catastrophe bond returns seen in 2020 so far, something that is set to increase over the coming months and as more of the pipeline transactions we currently see get completed.

catastrophe-bond-multiple-2020

The chart above displays the average multiple at issuance of catastrophe bonds for which we have the necessary data within our Deal Directory.

The average multiple of the catastrophe bond market stands at 2.88 times the expected loss so far for 2020 issuance that has completed and could rise further in the coming weeks.

That’s up from 2.4 times EL in 2019, 2.01 times EL in 2018 and a low of 1.86 times EL back in 2017, reflecting the rising returns of catastrophe bonds over recent years that was kicked off by catastrophe losses in 2017.

There are still a significant amount of cat bond maturities to come in the rest of the second-quarter of 2020, so issuance will have a job to beat them and continue the rise in cat bond risk capital outstanding.

But with another $1.25 billion at least already listed in our Deal Directory and still to complete this quarter, plus more new cat bonds to come, while we could see a dip in risk capital outstanding at some stage this year, catastrophe bond issuance levels look set to be strong and by the end of the year further outright growth of the cat bond market should be seen.

To read more articles like this one, visit Artemis.

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Insurance-linked securities largely immune to Covid-19: Lohmann, Schroders http://www.ilsbermuda.com/news/insurance-linked-securities-largely-immune-to-covid-19-lohmann-schroders/ Tue, 05 May 2020 12:04:16 +0000 http://www.ilsbermuda.com/?p=5166 Insurance-linked securities (ILS) have once again demonstrated their lack of correlation to global financial markets in proving themselves “largely immune” to Covid-19 related volatility, Dirk […]

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Insurance-linked securities (ILS) have once again demonstrated their lack of correlation to global financial markets in proving themselves “largely immune” to Covid-19 related volatility, Dirk Lohmann has said.

Insurance-linked securities (ILS), such as catastrophe bonds and other collateralised reinsurance structures, proved themselves resilient in the face of the Covid-19 coronavirus pandemic, according to Dirk Lohmann, Head of ILS at global investment manager Schroders, who highlighted their evident lack of correlation in a recent article.

Lohmann highlighted that, “Insurance-linked securities have been almost unaffected by the market turmoil linked to coronavirus.”

He explained that Covid-19 has triggered “major corrections in the listed equity, commodity and debt markets” with the majority anticipating a global recession as imminent, if not already begun.

For the global insurance and reinsurance market, both sides of the business are being hit, Lohmann said, “That is to say, they will be facing virus-related claims, and their stock holdings will have traded down significantly.”

Conversely to this, “Insurance-linked securities (ILS), however, have been resilient.”

“The structure of ILS diversifies away from most financial market risks, and the asset class is subsequently uncorrelated to interest rates, stocks or currencies,” Lohmann explained.

Adding that, “This can be valuable, because all of these often move similarly to each other during crises. The performance of ILS largely depends on the occurrence of a loss event, mainly related to natural catastrophes.”

ils-performance-resilience-correlation-funds

The chart above shows how catastrophe bonds have performed over time, versus a number of financial market benchmarks.

“During the Global Financial Crisis in 2008, ILS was comparatively stable, and so far has behaved similarly,” Lohmann highlighted.

Further explaining that the same should be evident through the current crisis as, “ILS is largely immune to Covid-19 as the majority of the risks transferred via ILS cover natural perils such as hurricanes or earthquakes.”

“There have been questions relating to life-related risks, given the Covid-19 outbreak,” he continued. “While there is life component to ILS markets, it constitutes a relative small – albeit growing – fraction of the whole. The impact of the virus on even those deals is currently expected to be limited.”

Discussing the past performance of the ILS asset class, Lohmann explained, “Compared to other asset classes, ILS have also historically offered investors lower volatility and less drawdown while still delivering attractive returns.”

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The chart above from Schroders clearly demonstrates the impressive performance of ILS since the outbreak of Covid-19.

To read more articles like this one, visit Artemis.

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COLLATERALISED INSURER CLASS LETS ILS FUNDS TARGET BROADER CEDENT BASE http://www.ilsbermuda.com/news/collateralised-insurer-class-lets-ils-funds-target-broader-cedent-base/ Thu, 30 Apr 2020 13:59:18 +0000 http://www.ilsbermuda.com/?p=5162 First Published in Artemis, April 2020 Bermuda’s latest addition to its insurance-linked securities (ILS) offering is the much discussed Collateralised Insurer classification of company, which […]

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First Published in Artemis, April 2020

Bermuda’s latest addition to its insurance-linked securities (ILS) offering is the much discussed Collateralised Insurer classification of company, which partner Brad Adderley, recently explained will enable ILS funds to target a broader range of cedents.

Brad Adderley

Speaking to A.M. Best TV at ILS NYC 2020 in February, Brad Adderley discussed Bermuda’s new Collateralised Insurer class of ILS structure, highlighting some of the flexibilities it will offer to fund managers and investors.

While ILS funds and other providers of fully collateralised reinsurance have been writing that business using other structures such as the special purpose insurer (SPI) for years, the new classification has benefits for them.

The collateralised insurer will “provide them with better flexibility when it comes to writing that business,” Addeley explained.

Those benefits come with costs attached though, as “When you become a collateralised insurer you’re going to have to have more capital, but the capital requirements are still reasonable. We’re thinking about $200,000 being the starting point, but that will be subject to the type of business that you write,” Adderley said.

But it is the ability to expand on the type of reinsurance business underwritten, as well as to do more of it, that could attract ILS fund managers to the new collateralised insurer class.

“Under the SPI rules you could only reinsure sophisticated parties, who normally were rated A- or better,” Adderley said.

“Now, under a collateralised insurer, you can technically reinsure anyone.”

It’s also a more flexible vehicle for offering a greater range of terms and conditions to cedents, Adderley further explained.

Saying that, “Under an SPI you couldn’t do clawbacks, but now you can do clawbacks in a collateralised insurer.”

He summarised, “If your business is plain vanilla and simple, you’re only going to do one or two transactions, maybe just use an SPI.

“If you’re going to do multiple transactions for multiple cedents and you don’t want to be a Solvency II equivalent classification, like a Class 3A, then be a Collateralised Insurer. You fit right in between classifications and the BMA is taking exactly the right approach.”

He further explained, “The Bermuda Monetary Authority (BMA) has again been market leaders, by coming up with this new classification.

“A lot of SPI’s became a bit like commercial carriers. So what they’ve come up with now is a new classification which is going to provide better regulation for that type of commercial reinsurer, who’s running collateralised business.”

With many choosing rated vehicles as the next step in their ILS infrastructure evolution, fund managers shouldn’t think the collateralised insurer counts that out.

“It won’t be a classic rated company. But you could get a rating,” Adderley said.

Adding, “We will see more collateralised vehicles, either SPI’s, potentially Collateralised Insurers (the new classification) and Class 3A’s getting ratings.”

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WHY THE DEVELOPMENT OF A SECONDARY MARKET WILL TRANSFORM ILS http://www.ilsbermuda.com/news/why-the-development-of-a-secondary-market-will-transform-ils/ Thu, 30 Apr 2020 13:35:35 +0000 http://www.ilsbermuda.com/?p=5159 First Published in Bermuda:Re+ILS, April 2020 The ILS market has become an increasingly important feature in the risk transfer landscape in recent years, and is […]

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First Published in Bermuda:Re+ILS, April 2020

The ILS market has become an increasingly important feature in the risk transfer landscape in recent years, and is growing increasingly diverse, encompassing not only catastrophe risks but cyber and other forms of coverage. What it needs now to take it to the next level is a liquid secondary market. Bermuda:Re+ILS reports.

Brad Adderley

There are many things investors look for when deciding where they should allocate capital. First, they need to believe they will be paid a fair return for the risk involved. They value investments that offer diversification—assets that are not correlated with other things in their portfolios. And they tend to prefer investing in things that are liquid: it is easier to justify investing in something when it is also easy to sell it, should you suddenly need the money for something else.

Insurance-linked securities (ILS) have traditionally offered good returns and offer the diversification element of this in spades. The typical institutional investor will have a portfolio consisting predominantly of stocks and bonds, supplemented by other things such as real estate, commodities and hedge funds. ILS is an attractive addition to these investments, because it should, in theory, have very little correlation with these financial assets.

However, what it has not been able to offer to the same degree is liquidity. Opportunities to sell ILS are limited, meaning investors often buy ILS with a view to holding it to maturity. That is fine for some investors, but to maximise its appeal across the whole spectrum of investors, ILS needs a functioning secondary market.

TRANSFORMATION

There is a growing movement within the ILS community that understands this and is attempting to rectify it. Brad Adderley, partner at Appleby in Bermuda, says it has the potential to take the industry to a new level.

“A secondary market for ILS will transform the industry. I don’t want to say it will lead to exponential growth, but it will certainly be a real game-changer,” Adderley says.

Adderley explains: “Investors want to know they can access risk and sell their positions quickly if they need to. A liquid market for ILS will drive down the cost of doing business and increase demand.

“The more demand there is, the better the price for issuers, so the more appealing it is to them too.”

“The solution to the problem is enabling a secondary market where collateral can be traded.” Henri Winand, AkinovA

A number of companies are attempting to create this secondary market for ILS. One of them is AkinovA, the insurtech company that became the first to operate in Bermuda’s regulatory sandbox, which encourages innovation by relaxing the rules by which companies must abide, in a safe and monitored environment.

Henri Winand, chief executive officer at AkinovA, argues that regulators should take a lead in creating an environment in which the ILS market can grow, to unleash the new capacity that will bring in the insurance market. To do this, he says, they need to be thinking about how they can promote a secondary market for ILS, and the issues that could arise for trading when ILS collateralise shorter duration policies or instruments which can be re-traded.

“Fundamentally, this is about making it possible for people to trade collateral, which will greatly improve capital efficiency in the re/insurance market,” Winand says.

It will also resolve another problem for investors, he adds.

“Trapped collateral is the bane of the capital markets,” he says. “The solution to the problem is enabling a secondary market where collateral can be traded.”

Adderley argues that there is no need for ILS contracts to be standardised for there to be a liquid secondary market.

“All you need is enough information about ILS so that investors can analyse securities and decide whether they want to buy them. That is one piece that is missing—at the moment investors don’t have access to that information,” he says.

Adderley worries that brokers are inhibiting the emergence of a secondary market. “We need to get the brokers on board,” he says. “Right now they are concerned that more liquidity/electronic platforms will mean lower commissions for them, and they are worried about being squeezed out.

“They need to recognise that liquidity/electronic platforms will grow the market overall. They might get a smaller slice of the pie, but it will be a much bigger pie, so they will do well out of it too.”

Other impediments need to be overcome. “Regulators need to think about how they can be more dynamic around things such as know you customer and credit checking, to make it easier for different kinds of risks to be packaged as ILS, so that capacity in new business lines such as cyber can be increased,” says Winand.

Once these blockages are cleared, the market that has already seen considerable growth in recent years can really take off. That will draw huge amounts of new capital into the industry, allowing re/insurers to write huge amounts of new business, ensuring businesses have unfettered access to coverage in cyber or any other line of business that issuers can think to package into financial securities.

BERMUDA IS CENTRAL

Winand believes Bermuda is the obvious centre for trading ILS.

“Bermuda is close to the world’s biggest capital markets: London and New York, in terms of geography and in terms of timezones,” he says.

“That is a big advantage for its ILS market compared to competitors such as Singapore. That said, Singapore itself has an advantage when it comes to proximity to China.”

Adderley agrees. “Bermuda will be at the centre of this market. Everyone markets their cat bonds in Bermuda because this is where the investors are and this is where the largest ILS platforms are,” he says.

“By creating the regulatory sandbox, the Bermuda Monetary Authority has positioned itself as an ally to the business.”

Another obvious potential centre of trading would be London.

“The UK regulator performed very well in 2017 when it set up the initial ILS framework with the industry,” says Winand.

“It has been overseeing sophisticated, collateralised securities and complex capital markets products for a long time. It has struggled to keep up with the specific quirks of the ILS market and of transferring insurance risk, and the way ILS deals are structured.

“Regulators can develop considerable expertise in a particular area, but then, if a key person gets a job in the private sector, a lot of that expertise can be lost. That means regulators can have relatively short memories, so it’s important to work with them to solve problems together over time.”

Wherever it happens, Adderley is convinced that a vibrant secondary market in ILS will emerge—the question is when, not if.

“The world is becoming much more comfortable with technology and with electronic trading,” he says. “Five years ago nobody was thinking about this, but now a number of platforms are working on it, and we will end up with a couple of them dominating the market.”

AkinovA hopes to be the platform on which that trading occurs but, Winand says, it is in no rush to leave Bermuda’s regulatory sandbox.

“It is better to master walking before you try to run, and there are challenges with this new way of doing business that are easier to resolve within the sandbox, by working closely with the regulator and marketplace participants,” he concludes.

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Challenges and opportunities for Bermuda http://www.ilsbermuda.com/news/challenges-and-opportunities-for-bermuda/ Thu, 30 Apr 2020 12:37:34 +0000 http://www.ilsbermuda.com/?p=5154 The Bermuda Insurance Regulatory Sandbox and other initiatives are helping to nurture some significant insurtech developments on the Island. Bermuda:Re+ILS explores what needs to happen […]

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The Bermuda Insurance Regulatory Sandbox and other initiatives are helping to nurture some significant insurtech developments on the Island. Bermuda:Re+ILS explores what needs to happen next to ensure the sector’s success—and what it means for traditional players.

As one of the world’s leading reinsurance markets, Bermuda has always led the way when it comes to creating innovative products for risk-based solutions. Insurtech is part of that trend.

According to Jasmine DeSilva, business development manager for risk and insurance solutions at the Bermuda Business Development Agency (BDA), the primary focus to date has been on the implementation of systems that mitigate inefficiencies and lower expenses.

“BUILDING SOLUTIONS WHERE REGULATION IS WILLING TO WORK ALONGSIDE YOU IS A CLEAR JURISDICTIONAL ADVANTAGE.” KATHLEEN FARIES, CHAIR OF ILS BERMUDA.

“We have seen some of the big players providing seed capital to emerging technology,” she adds.

The majority of the BDA’s stakeholders are looking at how new technologies such as blockchain and artificial intelligence (AI) can transform the back office by processing data more efficiently and improving the accuracy of risk management, DeSilva says.

“Up to this point, companies have viewed certain advancements as ‘nice to haves’ and we haven’t yet seen a move towards mass adoption, but the insurtech market is maturing and you would expect this to grow in the coming years,” she explains.

“Given the current measures being taken to mitigate the effects of the coronavirus outbreak, firms are having to embrace new working arrangements and implement business continuity plans using technology.

“It will be interesting to see how this influences the conversations around insurtech initiatives, such as electronic trading and digital platforms.”

Better processes

Kathleen Faries, chair of ILS Bermuda, paints a similar picture.

“The main focus so far for Bermudian reinsurers has been looking at insurtech for ways to improve current processes,” she says. “They are also exploring how they can do things differently or simply investing in startups that may have an impact in the future.

“Much of what has been impactful to date in the insurtech space has been on the front end of the insurance value chain,” says Faries. 

“There has been real progress on customer experience in the retail space. Insurers are bringing the purchase of insurance into the digital age, resulting in speed and ease of use for the buyer.”

In addition, she notes, insurers are accumulating more data for their own consumption through technological advances such as sensors and drones. 

“To gain real efficiencies and added value across the entire chain of risk transfer, we need to move to a holistic, unified architecture to move data from risk originator to risk taker,” she says.

“We need a market utility for moving risk data in order to leverage the value of technology across the industry. The value of our industry is in our ability to distribute risk globally; we need to build solutions that reduce the friction and cost involved in that distribution.” 

Developments in Bermuda

When it comes to the global reinsurance market, the pace of technological change has been a challenge. The regulatory environment does not always provide the flexibility needed for the industry to keep up.

In Bermuda, the government and the financial services regulator, the Bermuda Monetary Authority (BMA), recognised and acted on the importance of enabling innovation. The Insurance Amendment Act 2018 paved the way for the BMA to create an Insurance Regulatory Sandbox (and innovation hub) to facilitate and promote experimental and innovative applications of technology in the insurance sector.

“The Sandbox creates a live environment where new technologies can be tested by a licensed insurer or licensed insurance intermediary to a limited number of clients in a controlled way,” says DeSilva.

“Participating in the Sandbox has several benefits, one of the most valuable being the insight provided by the BMA from the outset, in terms of giving real-time feedback and ensuring regulatory compliance, which ultimately facilitates speed to market with more traction and momentum.”

Faries agrees. “The Sandbox is a valuable resource for companies that are interested in doing things differently, and for initiatives that currently don’t fit into the regulatory classes or framework we currently operate under in Bermuda,” she says.  

AkinovA, the electronic marketplace for trading re/insurance risk, is a great example of this process, Faries adds.

“As a result of the interaction and discussions between AkinovA and the Bermuda regulator, a new regulatory framework/class was developed, clarifying how a ‘platform’ would be regulated going forward.

“This makes way for others to look to Bermuda if they are building platform solutions for the industry. Building solutions where regulation is willing to work alongside you is a clear jurisdictional advantage.”

Henri Winand, chief executive officer of AkinovA, sees the Bermuda Sandbox as a “compelling proposition where insurtechs can deploy their offering with the right supervision and with a regulator keen to help and develop the next generation of insurtech businesses capable of partnering with the more traditional players”.

Impact on traditional players

In Winand’s view, the best insurtech fosters an ecosystem and partnership approach. One of the main opportunities insurtech presents is the ability to test different technologies faster without disruption to core operations. 

“The real prize is for the traditional players who are able to capitalise on faster innovation and tech cycles outside of their organisations,” he says.

DeSilva agrees that insurtech presents an opportunity to traditional players rather than a threat.

“It is fair to say the reinsurance industry as a whole has some catching up to do and historically it has been slow to adopt new technology, particularly if you look at what has happened in banking and the financial services sector,” she says.

“I’m sure there have been some concerns by some that insurtech initiatives would displace traditional players, but there are signs of change and there is now a broader recognition that leveraging technology to conduct business will inevitably aid in their longevity in the global marketplace.”

As in other industries, companies that don’t adapt to the business environment and meet the rapidly evolving needs of their clients will inevitably be left behind, DeSilva adds.

Winand highlights a number of challenges facing the companies venturing into this arena. They need to achieve staying power and partner with much large organisations right across a range of industries and disciplines, he says, to understand regulatory frameworks, access data and, crucially, access the required capital to move forward. 

Looking to the future, Faries expects that the management and analysis of data will continue to evolve due to the huge volumes of data companies have the ability to accumulate.

“Without good data management architecture, the data is useless,” she says. 

“Companies will continue to grapple with how to manage and leverage data. I am optimistic that with broker consolidation we may have an opportunity to start to advance our collective thinking around the concept of a market utility to move risk.

“The cost and inefficiency of our global distribution model continues to be an impediment in reducing the protection gap and encouraging more product innovation.” 

Jasmine DeSilva, Bermuda Business Development Agency, BDA, Kathleen Faries, ILS Bermuda, Henri Winand, AkinovA

To read more articles like this one, visit Bermuda:Re+ILS.

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Investors look to less correlated alternatives. Bodes well for ILS: Eaton Partners http://www.ilsbermuda.com/news/investors-look-to-less-correlated-alternatives-bodes-well-for-ils-eaton-partners/ Tue, 28 Apr 2020 14:14:09 +0000 http://www.ilsbermuda.com/?p=5129 Institutional investors are generally looking to stick with their private market allocations, despite the dislocation caused to financial markets by the Covid-19 coronavirus pandemic, with […]

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Institutional investors are generally looking to stick with their private market allocations, despite the dislocation caused to financial markets by the Covid-19 coronavirus pandemic, with sources of return that exhibit lower correlation seen particularly favourably, a survey by Eaton Partners found.

Eaton Partners, which is part of the Stifel Financial Corp. group of companies and one of the largest capital placement agents and fund advisory firms, polled limited partners of institutional investors for their views on allocations at this challenging time.

In the main, the survey focused on private market asset classes, which would include alternatives such as insurance-linked securities (ILS) and reinsurance-linked investments, found that the majority of institutional investors (64%) plan no changes to their private market allocations at this time, despite the coronavirus pandemic related volatility.

Encouragingly some 15% of those polled said they are planning to increase their allocations to the private market asset classes, but at the same time some 21% are planning to reduce them.

As we’ve been documenting, the financial market volatility caused by the pandemic crisis has driven some impacts to the ILS market, in particular the catastrophe bond segment to begin.

These fully securitised and secondary tradable catastrophe reinsurance instruments could be easily sold and so some more generalist investors, or those requiring cash, have been selling out of the cat bond market in recent weeks.

Which presented an opportunity for those more specialist ILS fund managers or dedicated ILS inevstors, who were able to pick up the sold cat bonds at below par pricing.

More broadly in ILS and reinsurance-linked investing, the next concern is really investor sentiment globally and how that could affect allocations to the ILS sector.

But Eaton Partners survey shows that private market asset classes can still expect to see some inflows, despite the dislocation and told us that alternatives and assets showing a relative lack of correlation could be particularly in demand, which may be a positive for the ILS market as the volatility settles down.

It’s important to put that demand in context though and Eaton Partners also warns of a “precipitous drop” in private capital fundraising for alternatives and that this could remain depressed for some time.

“While we do see LPs committing to GPs already in the process of underwriting, we also expect there will likely be a decrease in overall fundraising activity over the coming months,” explained Jeff Eaton, Partner at Eaton Partners. “Private capital fundraising activity typically has lagged the public markets by two quarters as denominator effect impacts and updated fund valuations take hold.”

One area of focus for investors looking to make allocations in the wake of the pandemic is expected to be those alternative asset classes that offer the strongest uncorrelated returns to the public equity markets, Eaton Partners believes.

Speaking with Artemis, Peter Martenson, Partner at Eaton Partners highlighted that, “We find that LPs are looking for “uncorrelated assets” given the volatility in the public markets.”

He further explained that in recent years LP’s had been moving into uncorrelated assets in order to complement their extensive equity oriented portfolios.

At the same time, Martenson said, the “breadth of uncorrelated assets and strategies now available to LPs has expanded over the recent years as well.”

“With the recent market volatility, we have seen LPs articulate their appreciation for the uncorrelated assets that they are currently invested in.”

Martenson also told us that as well as looking to take advantage of the volatile investment climate by targeting the dislocation in the credit and equity markets, investors are also looking to reduce the overall volatility at the same time, “which can only be achieved by further investing into uncorrelated assets.”

All of which bodes well for ILS and reinsurance-linked assets remaining an attractive option for institutional investors at this time.

Finally, Eaton Partners also noted that it is vital investment managers are ready and able to explain the nature of their strategies, including the correlation (or lack of) story.

“As our survey indicates, there will also be pockets of relative strength,” Martenson said. “Investors are determining what’s on their priority list for new, interesting ideas and moving the best ones to the forefront. We expect successful fundraising will require GPs to be more focused, articulate, and transparent than ever.”

To read more articles like this one, visit Artemis.

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