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4 October 2024ArticleRe/insurance

Bermuda’s ILS sector is at a crossroads

The sector needs to demonstrate sustainability and attract investor confidence, says Kathleen Faries of Artex Capital Solutions.

Bermuda’s insurance-linked securities (ILS) sector experienced a successful year in 2023, with catastrophe bonds and sidecars delivering exceptional performance.

However, the sector now faces the important task of proving its sustainability and ability to generate consistent returns. 

Top of mind is the importance of maintaining underwriting discipline, addressing long-term viability concerns and attracting investor confidence in the ILS market.

During this past year, we witnessed modest capital inflows from investors seeking opportunities in the ILS market. These investors were enticed by the potential for high returns and the  diversification benefits offered by ILS. To ensure continued investor confidence, it is crucial for the sector to maintain underwriting discipline, carefully manage risk, conduct thorough due diligence and implement robust underwriting practices. By doing so, the ILS sector is better positioned to attract sustained capital investment.

As we look towards 2025 and beyond, we must continuously adapt and innovate to stay ahead of evolving risks. Exploring new opportunities, such as emerging risks and alternative structures, is essential for ensuring the continued growth and success of the ILS market. By addressing concerns regarding long-term viability, the sector can instil confidence in investors and position itself for long-term success.

Consistent returns needed

The sustainability of Bermuda’s ILS sector hinges on its ability to deliver consistent returns and effectively manage risk. A sector that shows profitability in only one out of every 10 years is not an attractive investment opportunity. Therefore, demonstrating a commitment to underwriting discipline and innovation is crucial. Portfolio managers’ efforts to course-correct on attachment points and terms and conditions are encouraging, showcasing a willingness to adapt and move towards sustainability.

Investors still approach the private market sector with caution and conservatism. While the public catastrophe bond market has proved attractive in terms of risk/reward compared to other financial markets, lingering uncertainty and volatility persist in the private ILS market.

To attract positive inflows into collateralised reinsurance transactions in 2025, the sector must maintain the necessary discipline to deliver acceptable returns over the long term.

Despite the challenges, there are signs of investors returning to the ILS market. By demonstrating the discipline required to meet return expectations, the sector can expect positive inflows into collateralised reinsurance transactions in the coming year. While the private ILS market has experienced volatility and uncertainty, cautious optimism remains for the future.

Bermuda’s ILS sector stands at a critical juncture, needing to demonstrate sustainability and attract investor confidence. By maintaining underwriting discipline, addressing long-term viability

concerns, and delivering consistent returns, the sector can secure its position as a reliable and attractive investment opportunity. With cautious optimism, the ILS market can navigate challenges and pave the way for a prosperous future.

Big plans

As the industry navigates these crossroads, Artex Capital Solutions will continue to deliver exceptional services to our clients and carriers worldwide, and we have ambitious plans for the coming year. Through strategic mergers and acquisitions and talent acquisitions, we will expand the breadth of services we offer, solidifying our position as a global leader in the industry.

One area of focus is the development of a comprehensive global practice for carrier outsourcing. Leveraging our exceptional talent and services across the globe, we will provide carriers with unparalleled support and expertise. Our depth of experience will be the foundation upon which we build this practice, ensuring that our clients receive the highest level of service and value.

In addition to expanding our services, we are dedicated to enhancing our systems, tools and data capabilities. This will streamline our work processes and enhance our value proposition to clients, giving them full confidence in partnering with Artex.

At Artex, we are driven by a relentless pursuit of excellence. We are committed to continuously improving and evolving our services to meet the ever-changing needs of our clients and the industry. With our focus on growth, innovation and client satisfaction, we are confident that Artex will remain at the forefront of the global insurance market. 

Kathleen Faries is chief executive officer of Artex Capital Solutions. She can be contacted at: kathleen_faries@artexrisk.com

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