Matching cedant needs with investor appetites

Since its launch in 2005, Securis has developed into an established ILS asset manager with a large and globally diverse investor base.

Hurricane Florence from Space

Our business, investment strategy and value proposition have adapted to changing market conditions, evolving investor appetite and in recent years a series of complex natural catastrophe events.

The core strategy of our business is to match investor capital with the ever-changing risk transfer needs of our insurance and reinsurance counterparties. Securis manages multiple investment portfolios, each having its own specific risk appetites, target returns and investment mandates deployed across non-life, life and hybrid opportunities. This highly diverse investor base enables us to provide multiple forms of risk transfer solution to the market.

Our offering to the market

As such, we transact across a broad spectrum of complementary ILS segments and at a variety of risk levels. This is important as cedants typically build their risk transfer strategies using a combination of different instrument types (excess of loss reinsurance/retrocession, quota shares, cat bonds and industry loss warranties) and seek cover ranging from closer-to-risk earnings-protecting solutions to more risk-remote capital-protection products.

These requirements change over time as our counterparties evolve and need the flexibility to cede or retain more risk.

As the ILS market has matured and buying requirements change, we have seen the benefits of offering our counterparties a wider variety of structural forms.

Alongside fully collateralised structures, we have increased our fronting capabilities for both reinsurance and retrocession. We have also transacted several quota shares which are more targeted than the typical portfolio-wide proportional deals, for example, where ceded business includes only risk-remote layers, only occurrence layers, or just business from a limited number of territories. These targeted solutions are mutually beneficial where investor appetites are specifically matched with specific cedant needs and where stronger, longer-term relationships can be built.

The breadth of the above options improves our access to risk and enables us to build more sustainable portfolios for our investors.

The investors’ perspective

The last five years have clearly been a challenging period for ILS investors, as well as for the wider property catastrophe market. While we encourage investors to take a strategic and long-term view of their ILS allocations, the less well-modelled nature of some of the recent natural catastrophe events has tested investors’ tolerance. At the heart of this, the major ongoing challenge is ensuring that risk is adequately captured and priced. The two themes most impactful on our underwriting today are:

  • Climate change and its effects on event correlation, frequency and severity. This has been the key area of catastrophe research focus for us, feeding into our investment pricing and portfolio construction. This topic is under increasing scrutiny from investors as the regulatory environment has advanced and as there have been stronger connections drawn in the scientific community – as seen in the latest Intergovernmental Panel on Climate Change report.
  • Inflation following losses has been a growing issue for the market. The susceptibility to social inflation in Florida has been a major differentiator for our cedant selection and risk appetite. On top of the post-loss amplification and inflationary pressures we currently see in the market, the interconnected factors of rebuilding during a pandemic and the increased cost of materials and labour are expected to affect the overall insured Ida loss.

Our own focus over the last 24 months has been on de-risking our funds, particularly those with higher target returns. We believe the benefits of this strategy will be evident in relative performance this year. Moreover, sentiment has already been shifting towards more risk-remote strategies with investors seeking to reduce exposure to higher frequency losses. The interest levels have increased in our lower risk/return funds, our life strategies and particularly so in our cat bond-focused strategies. We think this momentum will continue and perhaps accelerate following Hurricane Ida, which will likely raise performance and trapped collateral concerns of investors in higher risk, more narrowly focused products in the market.

Despite this shifting appetite, our core strategy remains the same; we are committed to providing the full range of risk transfer solutions to the market and ILS opportunities to our investors.