ILS domiciles must find their niche
Domiciles targeting the insurance-linked securities (ILS) market must find their niche within the sector if they are to succeed and gain business, believes Shaun Geils, ILS manager at Kane.
Several ILS domiciles have been established in 2014—most recently Gibraltar. Each jurisdiction must find its place within the market, said Geils.
“We’re seeing a pick-up in the number of domiciles entering the ILS market. In one year we’ve seen the Isle of Man, Malta, Gibraltar and Guernsey target this sector, which definitely gives a perspective of how much ILS is growing,” he said.
“While competition is always a good thing, from an ILS perspective, the domiciles will need to brand themselves and differentiate—so it might be interesting to see how this happens between the traditional domiciles and the new ones.”
For the US markets, Cayman and Bermuda battle it out to be the domicile of choice for cat bonds transformers and collateralised reinsurance-type deals. Geils says that the movement between the two is a talking point within the industry.
“What we’re finding in Cayman is that there’s a lot of talk about ILS movement between the two domiciles,” he said.
“If you look at Cayman specifically, we’re still seeing renewals from big insurance companies. For example, within the top 20 property/casualty companies in the US, of those using ILS, about 50 percent are still issuing via Cayman.”
Geils also spoke of the market’s significant developments over the last 12 months.
“There’s been significant upsizing, which demonstrates just how much alternative capital is in the market,” he said. “We’ve also seen new sponsors coming into the market from the cat bond side—seven new this year, and potentially more to come, and an increase in small to mid-sized sponsors.”
In 2013, Kane SAC introduced a platform which allows the issuance of smaller transactions. So far the platform has seen seven transactions totalling more than $135 million. Geils said its frequent usage is likely to continue.
“As long as the cost structure remains, it will continue. Cost is definitely the main barrier of entry for smaller structures. We would also hope to continue to see diversification through new perils, which is something that investors are seeking,” he said.
