Aeolus seen well-positioned, as product restructure softens Ian impact

According to market sources, Aeolus Capital Management is expected to be able to provide a significant degree of continuity to its clients at the upcoming reinsurance renewals and throughout 2023.

We’re told that changes to the structure of Aeolus’ core retrocession products have helped to insulate the manager’s capital base from an overly large impact by recent hurricane Ian.

While the manager will certainly pay losses after the storm, given the catastrophe reinsurance and retro focus of its capacity deployment, we understand Aeolus could be better placed at 1/1 2023 than it has been for the last few year’s January renewal seasons.

Like much of the reinsurance and ILS market, Bermuda based investment manager Aeolus Capital Management, has been adjusting its products over recent years in reaction to what has been a particularly challenging catastrophe loss environment.

Thanks to these adjustments, to the product structure and terms of coverage Aeolus has written business at through 2022, we’re told by sources that it seems likely the impact from hurricane Ian will be less than many had anticipated.

This goes for other ILS fund managers as well, particularly at the retro end of the scale, where setting the right product structure is now seen as almost as critical as securing more rate.

Some impact and loss from hurricane Ian is to be expected for an industry event of this size, or course, and Aeolus has a range of strategies, with some likely to be more loss affected than others.

For example, the investment manager launched a Florida focused strategy named Corbel, which was deployed at the mid-year renewal season.

But our sources say that, while the Corbel strategy will take the kind of losses you’d anticipate of a Florida-focused ILS fund, after a storm like hurricane Ian, the broader Aeolus portfolio has been less affected than many had anticipated.

One of the main reasons is a shift away from the style of aggregate product Aeolus had offered, with a significant proportion of the aggregate covers Aeolus had written restructured and shifted to become a second and subsequent event coverage.

This means that hurricane Ian alone has not affected as wide a spread of Aeolus’ portfolios as was seen in other recent heavy catastrophe loss years.

This shift positions Aeolus’ core aggregate retro product more as a peak peril only, multi-event cover, than one that can pick up losses due to smaller and secondary peril cat or weather events, we understand.

As Aeolus has shifted back to writing aggregate retro more in a style seen a decade ago, it’s helped the manager to better insulate its portfolios against a spate of smaller events and the kind of mid to large-sized catastrophe Ian presents.

One broking source told us the adjustments to product structure mean a single larger event like Ian can’t cause the large drawdowns that retro strategies have seen in recent years, on its own, while Aeolus is also said to have installed caps on secondary peril contributions to losses as a further measure to improve results.

A key reason for the restructuring, being undertaken by Aeolus and other ILS managers, is to ensure more capacity can be rolled forwards, to provide continuity to clients at renewals, as well as to reduce losses and importantly to minimise the trapping of collateral.

With Aeolus one of, if not the, biggest retro markets in the world, this could prove an important development for the company, enabling it to take greater advantage of the attractive market conditions that are being seen as we move towards 2023.

Artemis reached out to Aeolus for comment and while the company declined, a spokesperson confirmed our assumptions.