Opportunity cost of trapped ILS collateral in focus: Megan Green, PWC Bermuda

The “opportunity cost” of having collateral trapped from prior year events is, in the current higher reinsurance rate environment, increasingly in focus among the insurance-linked securities (ILS) fund manager community, Megan Green of PwC Bermuda told us in a recent video interview.

Our latest Artemis Live video interview is with Megan Green, a Partner in the PwC Bermuda Asset Management Assurance Group.

Green’s work is focused on providing assurance services to clients in the asset management industry including insurance linked securities providers and she joined us to discuss insurance-linked securities (ILS) asset management activity in Bermuda today.

Green highlighted trapped collateral as a continuing issue for ILS fund managers and one that now comes with an increasing opportunity cost.

She explained that alongside investor appetite and capital raising, trapped collateral remains the other hot-topic for ILS managers.

“That’s been an issue for a few years now, but we are seeing collateral get released, which is great,” Green said.

But continued, “I think in this market, with rates being as strong as they are, it almost shows that the opportunity cost of that trapped collateral is greater.

“So it’s probably getting an even greater focus, because obviously investors and ILS managers would love that to be deployed.”

While trapped, this collateral and capital cannot be recycled to be put to work in fresh reinsurance arrangements, which in the hard market environment would come with significantly higher-yields than the arrangements that now see collateral still trapped.

Green went on to say that, “It’ll be interesting to see what happens in that space. You know, you obviously have your commutations that are going on. But, there’s chatter about whether standard commutation clauses are put in contracts, if that solves the problem. So I’ll be interested to see what happens.”

The full video interview with PwC Bermuda’s Megan Green is embedded below and can also be viewed, along with previous Artemis Live video interviews, on our dedicated video page.

You can also listen in audio to all of our interviews by subscribing to the Artemis Live podcast here.

All of our Artemis Live video interviews have a focus on reinsurance, ILS and the efficiency of risk transfer and can be accessed here.

You can also listen in audio to these interviews by subscribing to the Artemis Live podcast here.

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