Innovative new products will drive ILS growth this year, predicts Adderley

The signs of recovery in the ILS market are already evident, noted Adderley.

“The first six months of 2019 were more challenging for ILS but by the end of the year activity had picked up and I think things are back to what they were,” he said. “I think the difficulties of 2019 were a blip in the market, and we will now see more ILS, more cat bonds and more sidecars.”

Adderley pointed to the AkinovA platform as a sign of where the ILS market is headed.

AkinovA, the Bermuda-based electronic marketplace for trading re/insurance risk which is licensed to operate in Bermuda’s regulatory sandbox, completed a parametric cyber risk transfer in December 2019, a trade those involved said was the first of its kind.

The security comprises assets that are exposed to cyber related disruption impacting underlying power generation assets in the US. Hiscox developed, structured, and provided capital for the transaction, with Guy Carpenter serving as broker. The counterparty was an asset manager in the financial services sector.

Paul Jardine, former chief experience officer of XL Catlin and non-executive director of AkinovA, called the trade “an important step towards creating new capacity urgently needed to underwrite the huge cyber risks which continue to emerge globally.”

Adam Szakmary, director of underwriting in Bermuda at Hiscox Re and ILS, said: ‘In an ever-changing and rapidly growing market, it’s important to challenge ourselves to find new and innovative opportunities to advance risk markets, especially in areas like cyber where the traditional approach may be falling short.”

Adderley sees Akinova as an example of a broader trend. “Platforms are getting more sophisticated, the products being traded on them are becoming more sophisticated. In the next five years we will see a lot more new products like cyber ILS,” he said.

It will be interesting to see if 2020 brings more securitisations of life policies, Adderley added.

He also sees the hardening market as a potential catalyst for resumed interest in ILS. “Investors want better returns than they were getting from ILS in the last few years, but now that the market is hardening, they may be encouraged that returns on ILS will improve,” he said.

Adderley also anticipates that 2020 will see more ILS players getting rated. “I have been predicting this for a long time, but we will see more large ILS players getting a rating so they can do business from their balance sheets and compete with the traditional reinsurance companies,” he predicted.