Education is key to spreading the benefits of ILS
More education is needed about why insurance-linked securities (ILS) are attractive, a panel of experts discussed at the Bermuda Risk Summit yesterday.
James Lee, managing director of capital markets at Aspen, noted that many asset managers may not be familiar with the advantages of ILS.
“To get there you really have to give them the why,” said Lee, who stressed that investor returns have now become attractive.
“The key would be education to be honest, because we all forget how long it took for cat ILS to be where it is today. With technology that process can be speeded up but it’s vital to note that either lines of business have nuances.”
Lee noted that the cat market is “going through its troubles today—it’s dislocated”.
But he added: “How much more dislocated would that market be today if you did not have the $90 billion of ILS capital to help support that marketplace.
“As an industry we’re trying to develop new relationships to find other sources of capital to support these other insurance lines of business. Over time that will help reduce the cost of capital in theory, as more capital comes in.”
The 45-minute session, titled “The Evolution of Partner Capital”, was moderated by Craig Redcliffe, a partner at EY. He was joined by Adam Champion, EVP at Inver Re; Julia Henderson, chief commercial officer at Vesttoo; Ben Adolph, managing partner at Leadenhall; and Bob Forness, CEO of MultiStrat.
Addressing a challenge in the field, Forness said investors are forced to wait up to three months to see a return on the investment.
“If you think about them as an asset manager, they are saying: ‘wait, I’m putting out money, I’m waiting for money that’s sitting in somebody’s account to make it to me, and it’s taking anywhere from two to three months’,” he said.
“If we really want investors to take us seriously, we need to be able to deliver reporting and cash management and collateral management in an efficient way. And we are not close.”
