The battle for talent - ILS versus traditional reinsurers

As alternative capital has taken an ever-more prominent role in the risk transfer industry and more and more vehicles funded by alternative capital have been launched, so too has the need for talent with the expertise, experience—and contacts—to operate successfully in this space.

That has led to something of a battle for talent between traditional reinsurers moving into this space and the incumbent players already in it.

To establish the true picture of what is happening in this landscape, executives from executive search firm IPS Search at the start of 2018 conducted a number of in-depth discussions with insurance executives about the clash between traditional re/insurers and the newer ILS market participants as they seek to recruit the best and brightest talent.

The aim was to determine whether there now is a premium on talent with experience in this area, if companies are paying above the market rate for talent, and if there are other issues particular to this segment of the industry.

”Given the marked increase in the use of specialised products such as ILS we, as an active recruitment firm in the space, wanted to get a sense of how executives from traditional and non-traditional firms see the situation,” says Dan Gattis, senior vice president at IPS Search.

“As a global executive search firm with reach into all the key markets, we thought we were in an excellent position to reach CEOs and other senior officers to get a true sense of the challenges and opportunities facing firms as they respond to the increasing demand for these types of products.

“Growth has been phenomenal in the non-traditional platforms, with non-traditional deals now being almost 15 percent of total reinsurance capital, up from about 4 percent in 2006.”

“As the market grows, it needs to be staffed with the right kind of people,” adds Colum Lovett, associate director at IPS Search.

“The push to recruit individuals to work in a relatively new area of the insurance world has meant we have seen some interesting challenges as ILS companies try to recruit staff from traditional re/insurance companies and those companies try to retain their best people.”

Talent transfer

The IPS research found that executives on the traditional side of the business expect to lose talent to the non-traditional sector. A senior executive from one traditional platform said his company was beginning to lose some talent to the ILS space, and that ILS companies have been able to offer better overall remuneration packages.

If a company has strong insurance-talented people who are technically grounded, but also have familiarity with the capital markets, they
are the people who are most at risk of being poached away. They typically see significant increases in base compensation, but more impactful are the bonus and equity schemes that are prevalent on the non-traditional side.

It was also observed that some ILS platforms are likely to benefit from a lower cost base, giving them greater flexibility in remuneration, and they don’t carry the same level of regulatory burden as that imposed upon traditional carriers.

IPS also learned, via a CEO from a non-traditional platform, that candidates were far more readily entertaining opportunities in non-traditional platforms, suggesting that the reluctance from five or six years ago to consider such platforms has disappeared. With the increase of press coverage about non-traditional solutions over the last few years, candidates are far more willing to engage with recruiters on ILS opportunities.

That said, an executive from a non-traditional company in Bermuda noted that he hadn’t witnessed many people being poached in his area from the traditional market. He observed instead that some of the non-traditional platforms preferred to hire well-educated, but technically inexperienced individuals, to grow their own talent from an early stage and at a lower cost basis.

Another CEO, who has lived mostly in the non-traditional world, reported that he had seen the convergence of technical skills and cultural attunement—individuals comfortable in the insurance and the capital markets—affecting both traditional and non-traditional platforms.

Regarding the different platforms, the CEO said, someone with a Nephila-type model, for example, might need a broad skillset, but an affiliated model, such as an ILS platform aligned with a traditional reinsurance group, would need a slightly narrower skillset as “they’re not really reinventing the wheel”.

A further executive said his solution to getting the right talent was, indeed, to set up a non-traditional platform aligned with a larger insurance group.

Deal makers

Reference also was made to the importance of deal origination skills—they are highly valued across both platforms. An additional and valued special skill is sales ability—being able not just to imagine and structure the deal, but also to take the deal to market and present it in such a way to attract the capital needed to fund the deal.

This combination of technical skills in the insurance and the capital markets, coupled with the ability to successfully present a deal to the marketplace is “a rare talent”, as one executive noted.

This was further supported by comment from another CEO who suggested his firm was “light” on in-house marketing and sales ability. This was a skillset he likely would hire in future and he expected to pay market rate for it.

“These individuals typically have a good knowledge of technical matters, but they can also communicate to investors—they are both insurance savvy and non-savvy, making them highly valuable.”

Lovett and Gattis report that they have seen some of the asset management firms getting into this space and that those companies have many people who have the requisite sales skills. It is likely the market will see alignments, as companies build their ILS businesses and form partnerships with asset managers who will market the platform.

Regarding individuals in the market who may be looking to enhance their value as the market grows, several respondents noted that it will be essential to build upon one’s technical prowess, but also to gain proficiency in origination, negotiation, and sales.

IPS concludes that what seems certain is that there will be continued activity in both traditional and non-traditional platforms as they try to offer effective solutions to the market and its investors, in what is a rapidly evolving market space.

The competition for talent will be one of the defining elements of the market and will be essential to success. Companies will need to survey and define the talent they need to grow and prosper and, given the competitive marketplace, begin to recruit the talent early rather than waiting until the last moment and missing out on the right people.