2018 looks good for cat bonds
The ILS market in Bermuda looks very healthy, with more issuances and more platforms being built, Brad Adderley, partner in the corporate department of Appleby’s Bermuda office, told Monte Carlo Today.
“2018 looks very good, particularly in the collateralised space,” said Adderley. “There are more issuances, and more people doing business—it’s gaining traction and entering the mainstream.”
Insurance managers, investment banks, cedants and investors are all looking at ILS platforms and asking whether they should have their own.
“It’s continuing to grow. By the end of this year there will be more platforms and more trades,” he added.
He also noted that more funds are considering writing business in a more traditional way—and some are exploring the possibility of getting rated to achieve this.
Last year Lumen Re, the collateralised reinsurer of LGT ILS Partners, secured an AM Best rating of A (Excellent). Other funds are believed to be exploring this route.
“Some players have always been in ILS. Now Lumen Re has come over and overlapped, directly competing with cedants if they so choose,” Adderley said.
He suggested that this may signal more ILS players looking to explore rated vehicles, although this can be a lengthy process, with complex corporate governance and regulatory costs to consider.
Despite the buzz around ILS, Adderley noted that many new funds are not successful; in fact the success rate is quite small, partly due to how long it can take to process some of these transactions.
Commenting on London’s passing of regulations that allow the issuance of ILS from that market, Adderley said he is not concerned about Bermuda losing ILS business, but he does have some concerns that Cayman could lose some European business.
“There’s always competition. Everyone will say competition is good—it helps you to review what we do and make sure we do it right,” said Adderley.
The London ILS market has already completed some deals. Neon Underwriting launched its first ILS vehicle in the UK at the start of 2018: NCM Re completed the first UK ILS transaction, a $72 million collateralised quota share reinsurance transaction with Neon’s Syndicate 2468.
Halfway into 2018, SCOR became the first reinsurer to use the new UK ILS regime to issue a cat bond.
“The majority of cat bonds and ILS platforms are on Bermuda. What is the impact if we or Cayman lose one or two of those deals to London?” Adderley concluded.
