Bermuda’s ILS sector needs to show it is sustainable, says Artex’s Faries
After a successful 2023, the insurance-linked securities sector needs to show it can produce sustained returns on equity to its investors, according to Kathleen Faries.
The chief executive officer of Bermuda:Re+ILS company of the month Artex Capital Solutions, said the sector saw large capital inflows from “opportunistic” investors in 2023 and now needs to sow underwriting discipline to make sure they continue to put their capital into ILS.
“2023 was an interesting year especially in the context of it being a pretty large insured loss number,” she said in a video interview. “It was $127 billion in insured losses but interestingly for the reinsurance sector and the ILS sector they really did not get much of that loss. A lot of it was retained by insurers. So it was an excellent year for ILS and reinsurance.
“We definitely needed a year like that to keep investors interested in the asset class but the question remains: can we sustain that? Reinsurers have struggled in their ROEs for a long time so we need to be able to sustain that and we’re hoping we can.“
Faries said Artex Capital Solutions saw a 12.5% increase in assets in its dedicated ILS funds in 2023, when returns were among the best in any investment class.
“Some of that (investment) was very opportunistic. It was interesting to see some of that come in from hedge funds, family offices, high net worth individuals.”
She said some of that investment “quickly exited in 2024 and took their profit with them”.
She added: “Artex is still seeing interest from opportunistic investors in 2024. It seems like there is still some discipline around staying in at the higher attachment points.
“We want to see the market be sustainable. It is about the discipline and returns being sustainable.”
Faries said Artex had also seen an increase in sidecars, especially in the Bermuda market.
“There has been an uptick in interest in sidecars, both new sidecars being set up and investors backing existing sidecars,” she said. “Again, it is about finding an efficient way to deploy capital. If you are uncertain about getting the right pricing, then backing a balance sheet that has that underwriting expertise probably makes sense versus trying to pick those underlying contracts yourself.”
Faries said she is confident Bermuda will continue to develop as a re/insurance hub, but says it needs to keep promoting itself.
She said: “Bermuda really needs to continue to leverage and talk about the fact that it is a legitimate market.
“We have talent here, we have markets here, we have capacity here, we have innovation. Bermuda needs to continue to talk about that and make sure people understand we have a robust regulatory framework and people need to understand it is a legitimate mature marketplace.”
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