Media Centre Comment: Standing firm in the ILS market

Roy Fellows

Liz Frederick

Standing firm in the ILS market

Roy Fellowes, Global Managing Director, Insurance Management, and Liz Frederick, Head of ILS, outline the main discussion points from a recent ILS road show they undertook and discuss how the role of the manager in ILS transactions is changing.

Kane recently undertook an ILS road show. What was the purpose of the road show?

Roy: Our primary aim was to meet with key parties in the ILS market to emphasize our continued commitment to providing leading management and administrative services in this arena.

It was important to meet with sponsors following the completion of the acquisition of HSBC Insurance Management by Kane to answer any outstanding questions they might have had regarding what the deal meant for their relationship with us.

The transaction has been hugely successful for us positioning us as the largest global independent insurance manager, which is of course of great benefit to our clients. However, any acquisition process can raise concerns amongst clients and it was essential to show that we have maintained our stability throughout the transition phase by retaining all members of our team.

Liz: From a transaction producer perspective, we wanted to demonstrate the scope of the Kane organisation, not only in terms of the expanded range of capabilities which we provide in the ILS space, but also the extended global reach of the organisation.

Kane ILS is a leading provider in the Cayman cat bond market and offers extensive expertise and experience in Bermuda and the US across a range of ILS products.

Our international network of operations ensures that this expertise can be delivered on a domicile neutral basis, while our independent status ensures our full commitment to the demands of our sponsors and no one else.

Roy: The response from those we met was extremely positive. They considered the road show to be timely, informative and constructive; and stated that they were pleased that Kane would continue to be a trusted manager in the ILS market.

What types of organisations did you meet with?

Roy: The road show centred on the northeast of the US, and in particular New York, Chicago and Connecticut. We met a broad range of organisations, including: sponsors, reinsurers, transaction arrangers, deal council, noteholders and fund managers. It was imperative that we met with a broad spectrum of people to ensure that we were able to discuss the ILS sector from a range of different perspectives.

Unfortunately, time limits prevented us from seeing all of the parties that we wanted to on the road show. However, we intend to meet with other key ILS participants before the end of 2011.

What were the key issues that were raised during these discussions?

Liz: From a general market perspective, issues that were discussed included: increasing transparency within the ILS transaction, particularly in relation to the noteholders and the provision of information both during the structuring process and prior to the deal closing; the growing amounts of information being exchanged between all parties to the transaction; and issues and developments relating to the structuring of different forms of transaction.

Roy: One other topic that was raised on a number of occasions was that of the changing role of the manager in the context of ILS structures. There is a greater expectation on the part of the sponsor that the manager's function be a much more proactive one. Expertise must not only span all aspects of the particular vehicle, but also the dynamics of the insurance market as a whole, so that they are able to respond quickly and effectively to any developments that affect their particular structure. The manager's role is now an integral part of every component of the company's ILS strategy.

In terms of market developments, there was also discussion on ILS deal activity, with the general view being that Q4 2011 is expected to see more transactions coming to market.

What would you say these organisations considered a priority in terms of the services provided by their ILS manager?

Liz: Today it is expected that the manager, as we mentioned earlier, will play a much more proactive role at all stages of the process, from the initial structuring, to the management of claims through to the eventual maturing of the entity. At all of these stages, there is a requirement to not simply provide administrative support, but rather to use a broad range of expertise to facilitate greater efficiency and cost effectiveness throughout, and to ensure that the structure can react quickly and effectively to any issues that might arise.

Roy: It is important to remember that once the deal has been transacted, the majority of the parties involved move on to the next transaction, while the administrator remains to manage the structure. A combination of expertise and experience is essential to this.

There is often a misconception that once set up the vehicle will run almost like clockwork – this is not the case. Changing market dynamics, risk profiles, regulatory requirements etc can all impact the structure and the manager must be in a position to respond.

Kane has established a leading position in the provision of ILS administration services. What would you say has enabled it to achieve this position?

Roy: When it comes to experience and expertise in the management of ILS structures, Kane leads the way. We have been involved in ILS transactions since the inception of the market in 1997/98, and have worked on more than 60 deals since then. For example, in Cayman, we have worked on virtually ever single cat bond transacted there.

Our experience means that whatever issue arises in the context of your ILS structure we have the ability to deal with it. It also means that we are able to use our knowledge base to adapt to the changing market and to ensure that our clients are always positioned to get the most out of their ILS strategy.

Liz: Our market knowledge covers all aspects of the various structures which are employed in this sector, including cat bonds, side-cars, segregated account transformers and US Regulation XXX and AXXX vehicles. Our expertise spans onshore US, Bermuda, Cayman and extends into Europe and the Middle East – being domicile neutral is a fantastic benefit to our clients.

I would also add that we are constantly evolving our market offering to ensure that we continue to meet and exceed client demands. For example, Kane Cayman has expanded its remit to include the management of non-insurance licensed cat bonds, a move which has been well received by sponsors and arrangers.

How would you say the relationship between manager and clients has evolved in recent years?

Roy: The client now demands much more involvement and a much better understanding on the part of the manager of the transaction, the ILS market and the insurance industry as a whole. The manager must be able to provide an ever broader range of expertise to meet the requirements of this role.

Liz: It is also a much more interactive function, with the relationship between client and manager a lot closer than it ever has been in the past. The client is now more sophisticated, with a greater understanding of what they expect from their ILS structures. It is up to the manager to ensure that these expectations are met.

The industry that we operate in has become increasingly volatile and complex in recent years. The unexpected is now becoming part of the everyday, and the manager must always be in a position to deal with that.

Contacts
Email: liz.frederick@kane-group.com or
roy.fellowes@kane-group.com