Convergence Roundtable
In association with:
Our panel discussed the influx of convergence capital, how best to deploy it and ways to stand out from the crowd in the marketplace.
Are we beginning to see a levelling off of the influx of convergence capital? What would be the implications of such a change?
Craig Redcliffe: There is currently a lot of convergence capital sitting on the sidelines. What they’re looking to do is get into the market at an appropriate time—we’re aware of investors that have completed their due diligence process, are comfortable with the product and want to get into the market at the right time.
A number of insurance-linked securities (ILS) managers have turned away capital over the past year, as they were not able to deploy all capital that was offered to them. ILS managers ultimately have a responsibility to their current investors, so if the manager cannot deploy that capital within the return expectations of the fund, taking on the new capital could potentially dilute existing investor returns.
Brad Adderley: We keep on hearing about people turning away money. However, we’re still seeing a healthy influx of new Bermuda insurance companies writing fully funded, fully collateralised business—whether it’s a cat bond, sidecar, or a collateralised vehicle. The number of enquiries we’re getting in the space even when we’re hearing from underwriters that rates are going down is extremely high and there’s a fair amount still in the works. I wouldn’t be surprised if our number of fully collateralised vehicles at the end of the year is very healthy.
Barry Mah: Some of the ILS funds we administer at SS&C GlobeOp have utilised a capital commitment structure whereby investors commit a fixed amount of money and capital calls are made by the manager when they are ready to deploy the capital. Some managers are limiting investor commitments or they are not calling all of the committed capital at this point due to the fact that the mid-year pricing for reinsurance contracts is lower by 15 to 20 percent, so they don’t want to dilute their existing returns.
Therefore, we see a lot of capital on the sidelines waiting to be deployed. It will be interesting to see what impact a catastrophic event will have
on collateralised reinsurance pricing, particularly whether there will be a large influx of new alternative capital to replace the lost capital at higher prices, or whether prices stay flat as a result of the existing oversupply of capital commitments being deployed.
Don Kramer: All the alternative markets are declining, treasury bonds have risen since year to date, and when you look at that you’ll realise yields have gone down. Looking at the world of investments, where are the alternative places to put your money? I used to say that demand was inelastic for reinsurance, and to my surprise—and this is counterintuitive—as the price of reinsurance has gone down, many of the primary companies have actually bought less. Insurance companies’ yields are declining, while they’re buying less reinsurance and retaining more, so there is some elasticity in demand.
Bill Pollett: It’s definitely harder to convince investors to allocate funds to the asset class when rates are softening, but at the same time you’re offering a product that still looks pretty attractive compared to most other asset classes. We’re seeing a number of big investors on the Island doing due diligence, looking to allocate more assets.
We’ll see an acceleration after an event, with investors waiting in the wings for just such a catalyst. There may be a little bit of a pause or a slowdown of inflows, but the capital is here for the long run, there’s no doubt about that.
Kramer: The other issue is in moving into smaller sectors such as marine & aviation where there’s a fair amount of business. You see it in terrorism, and a whole variety of other areas where they’re starting to commit to the business. The only issue then is understanding portfolio analytics so that you don’t write the same risk twice, or correlate risk as you’re trying to get a non-correlated return.
Mah: The ironic thing is that if you write terrorism policy this type of risk is positively correlated to the equity market so investors are losing some of the non-correlation benefits of the ILS asset class, but you’re right—there are definitely more different specialty types of risk being underwritten
27 Bermuda Finance | 2014
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76