The “most pronounced” risk-adjusted ILS returns: Tangency’s Stanton at Convergence

Right now, there is an opportunity for institutional investors to harvest “the most pronounced risk-adjusted returns” from allocations to insurance-linked securities (ILS), according to Jo Stanton, Chair of ILS Bermuda and Head of Finance at Tangency Capital, speaking this morning at Convergence 2023.

At the same time, Stanton, in her welcome speech to delegates to the event, said that the ILS Bermuda industry group anticipates a continuing push to increase the efficiency of insurance and reinsurance risk transfer, as well as investors moving ever closer to the source of risk.

Stanton highlighted the challenging loss environment of the last six years, but noted ILS has proven resilient.

“The ILS market has once again proven resilient in times of crisis, and is well-positioned to enable investors to take advantage of the dislocated market,” she explained.

Going on to state that, “Despite caution, investors continue to be attracted by the features that have established ILS as a highly desirable asset class. In particular, its low correlation to the broader financial markets, with fund flows particularly to liquid ILS investments.”

Pointing out that, “There continues to be a capital shortage and an opportunity for investors to harvest the most pronounced risk-adjusted returns across both aggressive and defensive ILS strategies.”

Moving on, Stanton highlighted the important position Bermuda plays in global catastrophe bond and insurance-linked securities (ILS) markets.

She called Bermuda “uniquely positioned” thanks to its long-history of innovation in insurance risk transfer.

“Market disruptors create opportunity and new partnerships and this is an excellent time for Bermuda to do what we do best, act as the incubator for developing and implementing new emerging strategies capable of adapting tried and tested solutions with emerging risk and technology,” she explained.

Adding that, “Bermuda’s regulatory framework, which is constantly being refined, has created opportunities to develop and leverage the progressive commercial and regulatory approach already adopted in respect to FinTech and digital assets.”

Stanton went on to highlight the fact ILS, as a risk transfer tool and asset class, continues to expand and mature.

Saying that a, “Broadening of the ILS market can be seen in the expansion beyond natural catastrophes, which has historically been the primary focus, with growing interest in other types of non-correlated specialty risks and further developments in cyber and terrorism.

“ILS is acknowledged as an efficient capital base to solve some of the biggest and most challenging risks and provides the opportunity to narrow the protection gap, the amount of uninsured or underinsured risks, providing resilience and recovery to communities throughout the world.

“Other ESG factors are now being incorporated into cat bonds, such as carbon credit offsets, which has been well received for its emphasis on sustainability, a response to climate change.”

Stanton then explained that the ILS Bermuda industry group, which is made up of volunteers from leading ILS players and service companies in Bermuda, believes that the market will, “see a continued push to bring more efficiency to the process of matching risk to capital and investors getting closer to that risk.”

“The mission of ILS Bermuda has always been to ensure that capital and talent come to Bermuda and to nurture our homegrown talent through our education initiative,” Stanton said.

Adding, “As an industry group, our goal is to grow the business coming to Bermuda and facilitate the development of new innovative risk solution products and expand the risk spectrum in an efficient way for a sustainable future.”

Also read: Bermuda remains world-leader for cat bonds, ILS and Convergence.