Zurich
11 July 2017
Reporter: Becky Butcher

ILS continues to drive innovation


The insurance-linked securities (ILS) market will continue to drive innovation and efficiency in risk financing for the benefit of protecting buyers and investors, according to Christoph Buerer of Twelve Capital.

Speaking at a Guernsey Insight event held in Zurich, Buerer explained how risks and capital interact on a balance-sheet level from risk management and corporate finance perspectives.

He said: “The benefits ILS investments offer are a telling illustration of the value of active investment management. In contrast, by definition, passive investment gives investors significant exposure to below-average quality firms.”

At the margin, ILS managers would be more disciplined when deploying capital, as investors could essentially redeem their investment, whereas capital investors who inject in a reinsurance company balance sheet would be locked up, meaning capital could not be redeemed.

Buerer also discussed the use of ILS in relation to tail risks—low-probability, high-impact events. It is “imperative to ensure risk transfer payments can be collected in stress scenarios to avoid underinvestment and create value, and fully-funded ILS covers seem superior in comparison to the multi-gearing nature of traditional reinsurance company balance sheets”, he said.

The island's promotional agency, Guernsey Finance, hosted the event, which was attended by 90 industry experts.

Dominic Wheatley, CEO of Guernsey Finance, said: “The continued success of our ILS Insight event, which is now in its fourth year, shows how well thought of Guernsey is as an ILS centre.”

He added: “Our long track record in insurance, specifically our status as Europe’s leading captive insurance domicile, together with our expertise in collateralised reinsurance and the structuring of investment funds and listed vehicles, means that what we can offer is differentiated from many other jurisdictions.”

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