21 October 2019 Insurance

ILS Capital ‘pleased’ as refocus on M&E retro aids profits

Repositioning its book of business to better suit investor appetites is working well for ILS Capital Management, John Haggerty, the firm’s partner and managing director UK, told Baden-Baden Today.

Haggerty’s primary focus is underwriting the specialty reinsurance portfolio, of which the book is 95 percent marine and offshore energy (M&E).

He said: “I joined ILS Capital in 2015. The book then was around 50 percent M&E reinsurance, and 50 percent M&E retro. Since then we have repositioned the specialty book to focus on M&E retro, now 95 percent.

“During this time our distribution channels have changed dramatically.”

He said that in 2015, 95 percent of the firm’s M&E business was assumed through fronting relationships, while in 2019, 75 percent of its M&E business is written on a collateralised basis.

“Our preference is to sell our product on a collateralised basis without the use of a transformer due to the ‘costs’ of fronting relationships—not just the additional expense, but the fact that we are one step further removed from the client, and in many cases our involvement in the risk is anonymous to the client,” he explained.

He added that this “can put us at a disadvantage when valuing risk” and in some cases the company can see its insurance, incurred but not reported (IBNR) counted twice.

However, Haggerty said, as a fund ILS Capital looks at its performance in terms of underwriting success and efficiency of capital.

“From an underwriting point of view, I am very pleased with the performance of our specialty account. Since 2015, every year has been profitable, despite the occurrence of some large losses in the M&E market, including the Pemex pipeline explosion, the Tianjin explosions, hurricanes Harvey, Irma and Maria, Typhoon Jebi, and the Lürssen shipyard fire.

“While these events have not been overly dramatic on underwriting performance they have put considerable pressure on cash drag.

“This has trapped collateral unnecessarily in some cases, hurting our return. But to counter this, the firm has brought innovative mechanisms into its product to try and mitigate trapping and encourage timely release,” he concluded.

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