Fund managers seeking new strategies to make the most of ILS market

Fund managers are seeking out new strategies and structures to efficiently make the most of the insurance-linked securities (ILS) market, says John Butler managing partner and head of sourcing at Twelve Capital.

Butler told Bermuda:Re+ILS that the market has been “peppered with ‘cat bond lite’ transactions” in the last two years, which have opened the door to a “new wave of private ILS cedants” thanks to their lower capital requirements and reduced level of document complexity.

He claimed that at Twelve Capital in particular, fund managers who have been focussing on multiple asset classes have helped to generate positive returns for investors and have encouraged new, or rarely seen, perils into the ILS sector.

“The last 12 months have seen a major uptick in cat bond lites, driven by greater simplicity of the platform for the cedant and a growing motivation in terms of where the pricing and concentration of risk is in the private market on the part of fund managers,” he said.

“We’ve chosen to issue bonds via our own platform, even though they’re being brokered by major intermediaries that most of the time have their own platform, because of the speed and level of internal expertise that we have. It takes us less than 10 days to bring a cat bond lite to market.”

However Butler claims there is still some “major hesitation” when it come to cat bond because of the speed of transactions.

“The industry loss warranty (ILW) market might offer something tomorrow or at the end of the week, but a public cat bond might take three months to get the documentation and offering details together. The other issues centre around costs and documentation complexity,” says Butler.

He said however that by providing clients with access to the ILS market via collateralised treaty, private cat bonds and public cat bonds, Twelve Capital is offering something different to the market.