Faries backs Bermuda to retain position at the top of ILS

Bermuda has had close links with the insurance-linked securities (ILS) markets since the concept first emerged.

Given the Island’s reputation as a hub for innovation in the re/insurance industry, it was natural that this new form of alternative risk transfer would find a home among the many other carriers, brokers and investors who have made the market what it is today.

As the market matures and grows to form a more major part of the reinsurance capital base as a whole, other hubs such as Singapore and financial centres in the Middle East are setting up favourable regulatory regimes of their own in a bid to capture some of that future potential.

Can Bermuda retain its place as the global centre of the ILS market amid this competition?

Speaking to the 1.1 Club, sister publication Intelligent Insurer’s online, on-demand platform for one-on-one interviews with industry leaders, Horseshoe chief executive officer Kathleen Faries explained why she believes Bermuda has what it takes to remain a leader in the industry.

Fairies has had a front row seat in the rise of Bermuda’s ILS industry. With a career spanning nearly three decades, Faries has witnessed, and immensely contributed to, the development of the Island as the preeminent hub of ILS, as the industry has become an increasingly substantive and integral part of the re/insurance world.

With the market becoming increasingly competitive, there are now more options for investors and companies to consider when they weigh up where to domicile and manage ILS funds than there were when the sector first came into being.

That said, Fairies believes that alongside the Island’s proximity to the major market of the US—a factor she acknowledges has diminished in value slightly with the rise of videoconferencing during the COVID-19 pandemic—Bermuda has the regulatory framework and people necessary to retain a lead position in the ILS industry.

“The two things that are probably even more important now are, first, the intellectual capital that we’ve built up. Singapore, for example, is trying to duplicate what Bermuda has done around the ILS space and find its way into the industry,” she said.

“The intellectual capital and the skills that have been built up in Bermuda, that takes time—you’re not going to have that overnight.

“Second is the fact that we’re very commercial. It is a marketplace, and people want to be where the market is. The regulator, the government and the business community here all work together to grow on that success.

“Those things are what makes Bermuda unique.”

A niche no longer

With the growing importance of the ILS sector as a whole and the expansion of the market into domains previously considered to fall within the remit of traditional reinsurance, the market is no longer the niche play it once was.

As capital continues to flow into funds, with emerging risks such as climate change and cybersecurity, Fairies believes that ILS is well positioned to play a more leading role in the re/insurance industry at large.

“There are some big problems that ILS needs to take a leadership role on. It’s going to take product innovation, collaboration, and a lot of capital,” she said.

“ILS has shown over the years where they can have an impact and show leadership. It’s essential for us, the industry, to step up and figure out how to bring more capital to bear.

“What products do we need to develop? What is the technology we need to get more capital to these very serious and large problems?” she asked.

Fairies added that Horseshoe as a company is looking to play a key role in helping more investors enter the market, as well as using technology to build new products that cater to a growing demand for the asset class.

“We’re keen to play in that central collaboration space, to bring investors together to think about how we can build new products and find a better way forward,” she said.

“We would like to be at the centre of that, and leverage our expertise and relationships, and potentially data, to try to move that forward. You’ll see us doing that and talking about it more in the future.”

New pastures

Having worked across the sector for three decades, Faries is more than familiar with the challenges and opportunities facing the market.

After several years as an advisor and director following her departure from Tokio Millenium Re in 2019, the executive felt the time was right to join Horseshoe. She praised the work of her predecessor Andre Perez, who has moved to the role of executive chairman.

“Andre has built up a formidable organisation and team over the last 16 years. I can tell you that it was not an easy decision, or at least not a decision I took lightly, to carry on Andre’s legacy,” she said.

“But when faced with an opportunity to take up a role in an industry that I know so well, and have been actively involved in for about 14 years, with the potential to re-engage with many clients I’ve worked with before, it was pretty compelling.

“The role is a great opportunity to improve on what is already a great service model and team. I’m very fortunate to be joining an organisation that has a great reputation and presence in the market.

“The team is very excited about evolving alongside our clients, adding more value along the way, and helping the industry to solve some of the increasingly complex risk problems we’re going to be facing.”

To view the full 1.1 Club interview click here