ILS
News in brief
The ILS market has been very busy in recent weeks, since the sell-off in the early days of the COVID-19 pandemic. Bermuda:Re+ILS provides a roundup of some of the top stories that have made the news.
Bermuda’s share of total alternative capital capacity was $71 billion at the end of 2018, or approximately 73 percent of the global alternative capital market, according to the Bermuda Monetary Authority’s (BMA) 2019 Alternative Capital Report. That represented a healthy increase on the $51.5 billion of alternative capacity in Bermuda in 2017.
The BMA attributed this increase to the reloading of capital, newly registered alternative capital vehicles and improved self-reporting by the alternative capital sector.
In 2018, Bermuda’s alternative capital insurers reported approximately $19 billion of increased capacity via existing insurance-linked securities (ILS) structures and $12 billion of new capacity to the market.
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Oaktown Re IV, a newly formed Bermuda special purpose insurer registered by the BMA in April, has issued 10-year mortgage insurance-linked notes to National Mortgage Insurance Corporation (NMIC), a US mortgage company.
The notes provide NMIC with $322 million of fully collateralised excess of loss reinsurance protection for losses on its mortgage portfolio, within certain parameters, and cover an existing portfolio of mortgage insurance policies written from July 2019 through March 2020.
UnipolSai Assicurazioni, the insurance arm of the Italian Unipol Group, has placed €100 million of ILS that provide it with protection against earthquake risk in Italy and neighbouring countries for a three-and-a-half-year period.
The deal was significant because it is the first multiple-arrangement special purpose vehicle authorised by the Central Bank of Ireland for cat bond transactions. This will provide UnipolSai with increased flexibility to return to the market for future cat bond issuance through a ‘fast-track’ approval process.
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AXA XL Reinsurance in Bermuda has completed an alternative capital reinsurance transaction with Bluefire Insurance, a Texas-based managing general agency. In the deal Bluefire assumes risk from its personal auto portfolio through a collateralised reinsurance agreement with AXA XL.
It is the first personal auto alternative capital transaction that AXA XL has completed in Bermuda, and the first risk-taking position Bluefire has taken on its own business.
AXA XL and Bluefire’s partnership dates back to 2014 and was strengthened in 2019 when Bluefire consolidated its carrier assortment and moved its reinsurance buying to a portfolio basis.
Willis Re Securities and Willis Re have structured and placed €100 million of ILS for Achmea Reinsurance Company, the reinsurance arm of Dutch insurance group Achmea.
The cat bond Windmill II Re DAC, issued in June, is believed to be the first cat bond exposed to primary European insurance risk in 2020.
It was upsized from an initial announcement size of €80 million and pricing at a spread of 4 percent, below the initial spread guidance.
It provides Achmea Reinsurance with a single €100 million tranche of fully collateralised protection against European windstorm risk for a four-year period.
It features an indemnity trigger on a per-occurrence basis with terms mirroring the traditional reinsurance placement to ensure effective integration within the overall property catastrophe reinsurance programme.
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Capsicum Re has partnered with Arch Mortgage Insurance (Arch MI) to raise and place the first reinsurance capacity for Bellemeade Re 2020-1, a special purpose reinsurer.
In what is believed to be the first mortgage indemnity insurance-linked note (ILN) since the COVID-19 outbreak, announced in early July, Capsicum Re obtained $78.5 million of indemnity reinsurance for Arch MI.
It covers a pool of approximately $44 billion of mortgages, linked to 163,292 loans issued by Arch MI and affiliates primarily in the second half of 2019.
Twelve Capital has fundamentally reassessed its ILS strategy, reviewing its product offering to focus on cat bonds and peak perils in private ILS. The fund manager said it expects more strong growth in the cat bond sector, with the asset class having delivered good performance over recent years, despite a period with substantial natural cat losses.
It currently has a Undertakings for the Collective Investment in Transferable Securities (UCITS) fund with more than $600 million in assets, and provides bespoke mandates for large institutional investors.
Twelve Capital said it sees little additional value in further diversification within private ILS, and will therefore focus on peak perils, such as US hurricanes and California earthquakes, in this market.
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Guernsey’s insurance industry is developing a green kitemark for its ILS platforms, to promote environmental, social and corporate governance (ESG) issues.
Adele Gale, head of ILS at Robus Group in Guernsey, told a We Are Guernsey-hosted ILS Insight webinar that ILS platforms will be able to apply for the kitemark, which will serve as an independently-verifiable badge to demonstrate their ESG credentials.
A poll during the webinar showed that more than 95 percent of delegates agreed that ILS has the potential to have ESG credentials.
A secondary market for ILS can emerge only once the broader market fully embraces electronic platforms, according to Brad Adderley, a partner at Appleby in Bermuda.
He argued the primary obstacle blocking the development of a secondary market for ILS is habit.
“People need to get used to doing business electronically—not just in the secondary market,” Adderley said.
“Everybody accepts there is too much frictional cost lost in premiums, and that the market needs to be more efficient. The answer to that is to use electronic platforms, but people are reluctant to be the first mover, they are waiting for others to move first.”
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