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Analysis from broking group Aon and Parametrix, a specialist in parametric cloud downtime cyber risk transfer, shows that it is possible to gain diversification within cyber portfolios that have cloud outage risk concentrations, with geography one way to achieve that.

Recall that cloud outage risk is one of the main systemic exposures in the cyber insurance and reinsurance marketplace.

For those focused on possible aggregation risks within cyber portfolios, cloud providers have been an area of growing focus.

This is driven a specialist market in cloud outage cyber risk transfer deals, which is where Parametrix focuses its efforts.

That company modelled the risks and acts as the parametric trigger reporting agent for reinsurer Hannover Re’s innovative privately placed $13.75 million Cumulus Re (Series 2024-1) parametric cloud outage catastrophe bond.

Parametrix also recently secured a $50 million parametric cloud outage cover for a US retailer, with backing from a range of re/insurers.

Which has helped to demonstrate both the demand for cloud outage protection, as well as how a parametric solution can be effective and even be securitized and backed by capital market investors.

As this segment of the risk transfer market grows, which seems inevitable given the exposure to cloud hosting providers and cloud-based software solutions is rapidly expanding, identifying how the cyber re/insurance market and those supporting such deals with risk capital can effectively diversify their exposure is key.

Rory Egan, Head of Cyber Analytics at Aon’s Reinsurance Solutions division explained, “Large cloud providers such as Amazon Web Services and Microsoft Azure are increasing in systemic importance, as organizations across the globe from all industries migrate business processes and data to the cloud, and software applications are increasingly cloud-based.

“Therefore the market-leading cloud providers understandably are a focal point for cyber aggregation risk managers. However, there is an opportunity to go beyond overly simplistic and conservative approaches when estimating exposure at risk, and potential losses stemming from cloud infrastructure outages.”

Explaining the rationale for the research, Egan added that, “By shedding light on how utilization of cloud infrastructure varies across the globe, this paper intends to help cyber (re)insurers credibly allow for the effects of diversification and redundancy when determining their exposure to cloud-related loss scenarios and optimizing their portfolio mix.

“With this research, we aim to increase confidence among (re)insurers to grow their cyber exposures through improved portfolio risk management. In turn this can increase the availability of risk capital and value of risk transfer solutions for organisations facing cyber risk, which is beneficial for the increasingly digitized global economy.”

Aon and Parametrix’s research found that portfolio risk of systemic cloud outage events can be reduced through geographical diversification.

It explains that, “The unique nature of cloud service delivery means that regionality plays a role in systemic loss events.”

Parametrix Analytics analysed Aon’s Global Industry Exposure Database, covering roughly $8 billion of cyber risk premium, meaning that the work covers more than half of the estimated global total.

Using its proprietary portfolio scanning and infrastructure analysis tools, Parametrix assessed the performance and interdependencies of critical third-party digital services among this representative group of actual businesses, the pair explained.

Summing up the findings as, “It shows how losses arising from cloud outage events can be diversified within large (re)insurance portfolios. A significant level of diversification can be achieved by underwriting portfolios of company risks that span continents, or are geographically distanced within the same continent. However, writing a portfolio which covers companies of varying sizes, but within the same continent, delivers less diversification.”

As cloud outage and related critical software and services exposures grow in the insurance and reinsurance market, it is to be expected that an increasing number of cloud outage specific risk transfer deals will be entered into, some of which will likely find its way to the capital markets.

Because of that, research that helps to demonstrate how portfolios of cyber risk can be diversified is an important input to growing the ILS market’s appetite for cyber risks in general and cloud-related risks specifically.

There are points of risk concentration, such as some of the major Amazon Web Services cloud infrastructure hubs.

The research from Aon and Parametrix states that, “Since diversification will not fully address the risk posed by accumulation of exposure to AWS us-east-1, other risk management actions are called for.”

One of these risk management actions is risk transfer, so reinsuring exposure to a cloud region of concentration, but the pair also highlight risk avoidance within portfolio management and risk mitigation for the insureds themselves, as both equally important options.

“In the past few years, the cyber (re)insurance market has focused on identifying and quantifying cyber aggregation events,” Crystal Boch, US Head of Cyber Analytics at Aon’s Reinsurance Solutions said. “We’ve made a lot of progress in this area and have highlighted the detrimental impacts these events could have on the industry and the economy, recently demonstrated by the CrowdStrike outage. There has been less focus on how insurers and reinsurers can diversify their exposures to mitigate the effects of these events on any one portfolio, this paper aims to make headway in this conversation.”

Sharon Haran, Head of Parametrix Analytics, explained, “The mainstream belief has been that diversification of cloud risk was almost impossible to achieve. However, our portfolio modeling uncovers the clear advantages to be gained by writing a portfolio that spans the globe. We now know how to help our risk carriers manage one of the two key systemic cyber risks.”

“We have been collecting data about the cloud and how companies use it for more than five years,” Haran continued. “By infusing Aon’s Global Industry Exposure Database with our own understanding of companies’ cloud behavior and reliance, we have distilled some concrete insights into the potential for cloud diversification.

“These key insights equip the industry with the tools needed to identify and transfer the risk, through advanced reinsurance solutions and ILS transactions.”

Cloud outage risk can be diversified, risk transfer still key: Aon & Parametrix was published by: www.Artemis.bm
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Some 27 years since I had my introduction to parametric triggers, one factor is still cited as holding back broader adoption, the issue of basis risk.

But there are now signals that suggest the industry is finally beginning to overcome this perceived coverage gap and has reached a stage in its maturity where perhaps basis risk won’t get the blame anymore, at least not every time.

Basis risk, the gap between coverage limits and actual payouts, or payout quantum and damage suffered. It’s an issue parametric insurance and risk transfer has faced since its infancy.

It’s hard for buyers to get over this issue, which under their typical approach to buying protection can look like a gap in coverage and so a risk or uncertainty they are not keen to assume.

Near-misses haven’t helped.

There have been near-misses, where parametric risk transfer structures failed to payout but the protection buyer felt they should have, going right back to the beginning of the market in modern parametric risk transfer (say mid-90’s).

Unfortunately many media sources, mainstream and B2B, often jump on these as headline opportunities without ever looking deeper to see how the protection buyer felt about that miss.

Often a basis risk miss is not seen as failure at all, just as one part of a holistic risk management strategy that wasn’t activated by that particular event.

I digress. Basis risk remains a key consideration for discussions of parametric risk transfer market growth.Of course, basis risk is also evident in indemnity insurance and reinsurance structures as well.

But, in many cases, it’s not the basis itself. It’s the lack of education about the risk, or even a lack of innovation in attempting to manage and minimise it, that really exacerbates the issue.

The insurance and reinsurance industry has a habit of sticking to what it knows best. Which means parametric triggers can be structured without thought as to how they are best integrated into programs and towers.

But this is changing, thanks to the growing wave of interest in parametric risk transfer and the growing number of innovative specialists in the space.

We now have truly innovative underwriting companies looking to push the parametric needle, while brokers are increasingly sophisticated in their parametric and holistic risk management offerings as well.

When it comes to basis risk in parametric risk transfer arrangements, things are moving on (finally).

While basis risk is never going away, it’s no longer something to be feared (or at least it shouldn’t be).

Think back to almost 30 years ago when the first of the parametric risk transfer structures that are similar to those we see today emerged.

They were simple and simplicity was encouraged at the time, in parametric trigger design.

The level of technological advancement in the insurance and reinsurance industry was relatively low back then.

The first parametric catastrophe bonds in the mid to late 90’s saw concentric rings and boxes drawn around locations, with different parameters used for different levels of severity responsiveness by triggers.

Sound familiar? Yes it was simple, but it’s not all that different to today and simplicity and transparency are still key for many parametric programs.

What has changed is how advanced the technologies underpinning risk models and analytics have become, as too have the structuring techniques, while the accuracy, reliability and range of data sources for trigger inputs is now expansive.

Which means parametric triggers can be designed to more tightly integrate with a protection buyers’ existing insurance or reinsurance program and tower arrangements, making for reduced basis risk.

But we believe the market can go further and we’re starting to see some parametric specialist companies taking basis risk reduction to another level.

We’ve seen brokers working with specialist underwriters to undertake a ground-up re-analysis of portfolio exposure and a reassessment of how risk is transferred, or reinsurance bought, for their clients.

This can drive insights that assist in dovetailing parametric risk transfer more neatly, closely matched and tightly integrated alongside traditional sources and types of coverage.

We’ve seen multiple reporting sources used, the hybridisation of indemnity+parametric structures, use of sensors, algorithms to derive indices, secondary data sources, and all important innovation around attachment points, sliding scales, one-shots, parametric sideways covers, stop-loss instruments.

The possibilities in parametric risk transfer are becoming much, much broader. Ultimately that’s good for the buyers and for the capacity providers as well.

All of these innovative risk transfer approaches can help to minimise and mitigate basis risk.

Most important is starting with a clean sheet, to look at a clients risk transfer and deconstruct the program or tower, only to then build it back up with elements of responsive parametric protection at its core.

We need to see more of this, as through this process (if a client is kept fully-engaged) the education that will be gained into their true need for risk transfer and risk capital, learning what type of protection and capital injection they need and when it will be most helpful, can actually make their entire program more efficient.

It is amazing what you can learn when you deconstruct the risk transfer structures of the past and look to rebuild them to include modern techniques and efficient responsive capital.

Which is why we’d say, don’t blame the basis risk. There are now a multitude of ways to manage and reduce it.

More importantly though, if parametric risk transfer is approached as part of a holistic overhaul of programs and towers, it often makes much more, perhaps perfect, sense as to where it should be integrated.

Some insurance programs and reinsurance towers haven’t changed in years, perhaps decades, and when they do, the change is not always with a view to modernise and incorporate responsive, modern layers of earnings and capital protection.

All of which is to say that education remains the main thing holding back parametrics, in our view. But it’s changing and improving, fast.

That and a lack of ambition in some quarters, it’s often simpler to stick with the structures that are known and accepted. But thankfully, the growing breed of parametric specialists and increasingly innovative specialists in brokers and re/insurers are beginning to change things.

One day we may not even talk about basis risk any more.

It will still be there. But, with education and ongoing modernisation of our approaches to and structures for risk transfer, as well as use of advanced tech, the basis risk just might not matter as more intelligent, responsive risk transfer becomes the norm.

Parametrics: Don’t blame it on the basis risk was published by: www.Artemis.bm
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The evolution of investor’s and capital’s view of opportunities in the insurance-linked securities (ILS) space has been particularly rapid over the last couple of years and Chris McKeown of Vantage Risk believes collateralized reinsurance opportunities and new lines of business are increasingly of interest.

McKeown, the Chief Executive for Reinsurance, Partnership Capital, and Innovation at growth company Vantage Risk, spoke with us around the recent Monte Carlo Rendez-Vous event and explained that he feels while catastrophe bonds have been in focus, it is now collateralized reinsurance’s turn again.

“What I think is especially invigorating for the industry today is how capital’s view of ILS opportunities has rapidly evolved,” McKeown explained.

“Indulge me in plugging Vantage a moment. We’ve taken a “partnership” approach to working with our investors. We’re not creating packaged vehicles but working hand-in-glove to create risk portfolios that align with our investor’s goals. Our collateralized reinsurance framework is adaptable to multiple strategies and approaches to the market, and we have been actively working to address some of the challenges for investors like tail risk and trapped collateral,” he explained.

Going on to say that, “Syndicated portfolios are more susceptible to market cycles. Our partnership capital business is agnostic to the market; we’ve positioned ourselves to be of interest regardless of conditions. It is imperative to us as capacity providers to continually innovate products that are of value to the reinsurance buyers in order to justify our returns. If the market becomes cost competitive, we’ll strive to provide our counterparties with a greater ability to save across capital structures and counter what the syndicated market can provide.”

Which led McKeown to say to Artemis, “So, I think that collateralized reinsurance is where you’ll see interest from investors in 2025.

“You have seen the resurgence in interest in the investment class through cat bonds in 2023 and 2024 and some investors will again look to write more risk across the curve, and we see many of them become increasingly comfortable with less commoditized portfolios.”

Finally, McKeown highlighted that the ILS market does not stand-still and that investors are showing increasing interest in new risk classes and the investment opportunities they could present.

“I’m particularly excited to have investors now expressing interest in longer-tail liabilities that can be matched to asset strategies,” he said. “Vantage is well poised to seize that opportunity.”

During our discussion McKeown also explained why he feels we haven’t seen any new reinsurance start-ups of any note yet, despite the hard market pricing environment.

“For many investors, their appetite for that volatility has diminished while at the same time the world looks riskier. With the looming spectre of climate-induced losses, there’s less confidence that reinsurers will see good years to balance out the bad,” he explained. “That makes investors reticent. As an industry we need to continue to prove that we have the courage and conviction to grasp the proverbial nettle of today’s risks and deliver consistent results.”

In addition, the traditional market is now doing a better job of “harnessing ILS capital alongside their balance sheet capital,” which has muted the cat market opportunity for new entrants.

However, things are a bit different on the alternative capital side, with investor interest growing and widening, as ILS is seen as an efficient way to access the returns of the reinsurance market.

McKeown told us that, “It’s important to differentiate alternative capital investors. Returns have been strong in 2023 and there’s a bullish outlook. We’re seeing appetite for expanding into longer-tail lines, as I mentioned, and we’re advantageously positioned to meet that market interest.

“Structurally, there’s simply closer connectivity and alignment between investors and reinsurers in alternative capital structures. That builds trust and confidence. And it’s why we think Vantage’s partnership approach with our investors is key to our ongoing success in attracting capital for deployment.”

Read all of our interviews with ILS market and reinsurance sector professionals here.

Capital’s view of ILS opportunities has rapidly evolved: McKeown, Vantage Risk was published by: www.Artemis.bm
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As the insurance-linked securities (ILS) industry looks towards the end of year renewals, Stephan Ruoff of Schroders Capital told us that ILS managers need to maintain clear investment principles, stay disciplined and be judicious in their selection of risks and counterparties.

Speaking with Artemis around the time of the Monte Carlo Rendez-Vous event, Stephan Ruoff, co-head of Private Debt & Credit Alternatives, and the Chairman of Insurance Linked Securities at asset manager Schroders Capital, highlighted what he sees as key topics for the ILS sector as the reinsurance renewal discussions begin.

Focusing in on the importance of sustained discipline and fiduciary duty to investors, Ruoff noted that ILS investment managers still have some uncertainty ahead and challenges to overcome.

First, he explained that, given the time of year, the, “Annual assessment of tropical cyclone season’s impact is crucial for reinsurance market predictions before year-end renewals, especially in Florida.”

Ruoff went on the explain that, “Despite a strong performance by ILS and the reinsurance industry in 2023 and into 2024, challenges remain.

“These include underwriting and pricing discipline due to historic inability to sustainably cover cost of capital, increased market volatility, economic uncertainty, and higher capital cost.”

Adding that, “Notably, 2023 was exceptional for ILS, attributed to no major losses, recovery post-Hurricane Ian, and a hard market environment.”

But despite this, the demand side of the market is responding still and Ruoff told us that, “Economic and population growth, alongside inflation, continue to drive the need for reinsurance protection, with supply and demand expected to stay balanced barring unforeseen events.”

There is a need for the ILS industry to hold its ground on the terms and structures in the market, as insured losses were once again driven by so-called secondary peril events in the first-half of this year, Ruoff pointed out.

He also told us that the impact of climate change is increasingly evident on these risks, such as severe storms, wildfires and localised flood events.

Ruoff told Artemis, “Economic and insured losses are expected to remain high, with secondary perils like severe convective storms in the US notably influencing losses. This necessitates a portfolio strategy focused on avoiding secondary perils and preferring occurrence structures with lower attachment probabilities.”

“As ILS managers, maintaining clear investment principles and strategy ahead of renewals is paramount, including understanding and responding to the risks posed by secondary perils such as US severe convective storms,” he further explained.

Going on to say that, “Managers must select counterparties judiciously. Likewise, service providers require careful selection, with due diligence and know your client being crucial for the underwriting process.

“Maintaining underwriting discipline is vital, ensuring wordings and alignment of interests between cedants and capacity providers are balanced.”

He went on to explain that, “Macro trends such as inflation, exposure concentration in high-risk areas, and global interest rates are pivotal in driving pricing assumptions and should be taken into account in risk transfer structuring and pricing.”

Adding that it is, “It’s crucial for ILS managers to understand the capabilities and limitations of models, with investors needing to formulate their own risk views to mitigate information asymmetry.”

Overall, Ruoff sees the need for the ILS market to stick to the disciplined capital deployment strategies that have been seen over the last year, with no major changes at renewals.

Yes there is room for some managers to deliver differentiated strategies, such as ones more focused on frequency risks, but that is not for everyone, Ruoff explained.

“There is scope for managers to have different strategies with their own risk/return profiles, and that’s fine. However, not all investors or managers are interested in providing earnings protection to the re/insurance market, and that isn’t the ILS market’s fundamental raison d’être,” Ruoff explained.

Concluding that, “Should re/insurance companies’ equity capital providers find their returns unsatisfactory, it would be prudent for the re/insurance market to enhance its pricing strategies and underwriting rigour, rather than transferring this burden onto the ILS market.”

Read all of our interviews with ILS market and reinsurance sector professionals here.

Clear investment principles & judicious selection, key for ILS managers: Ruoff, Schroders Capital was published by: www.Artemis.bm
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Artemis has learned that global reinsurance company Hannover Re is assessing its risk management need in relation to the K-Cessions quota share sidecar for the second year running and we’re told other major reinsurers may also pursue this approach, as companies manage their portfolios and are motivated to retain profitable risks.

Reinsurance sidecars are core components of major reinsurers retrocession programs, as well as key strategies that allow them to build relationships with third-party investor capital.

That strategy will be unchanged, as these are long-standing structures in the market and also increasingly prevalent.

But, sources tell us companies are analysing the requirement for quota share support for 2025, versus their desire to retain some more risk and derive additional profits from their portfolios.

In this attractively priced reinsurance market it’s likely some reinsurers could downsize sidecar vehicles, we are told and our sources told us Hannover Re is actively looking at its capital support needs for the next year.

Hannover Re’s retrocession program renewal for 2023 consisted of a K-Cession quota share placement sized at US $831 million.

A year ago, we reported that Hannover Re was looking at the flexibility it had in its retro program for 2024 and was considering ceding less to proportional retrocession partners for this year.

That turned out to be the case, as Hannover Re placed its K-Cessions quota share sidecar at a smaller US $757 million in size for 2024, shrinking the structure by 9% over the previous year.

We’re again told by sources that a further shrinking of K-Cessions is possible for 2025, while other major reinsurers are also considering similar moves.

It’s considered cycle management, as reinsurers seek to maximise the benefits of the still-hard reinsurance market environment, while actively managing their risk portfolio and balancing their retrocession needs.

Artemis reached out to Hannover Re for comment and the company confirmed it is analysing its retro needs for 2025 and that the quota share cession under its K-Cessions sidecar could be adjusted.

A spokesperson told us, “According to current plans, for risk management purposes we may not need that level of K-cession in 2025.

“Of course, final decisions will be made more towards year end, also taking into account the loss situation during the remainder of the year.

“Irrespective of the final cession rate, the K-cession will remain the backbone of our retrocession strategy.”

Which confirms the core nature of the sidecar structure for Hannover Re, but that it could again reduce in size next year.

Of course, sophisticated reinsurers like Hannover Re have a range of retrocession options available to them, across quota shares, excess-of-loss arrangements both traditional and collateralized, catastrophe swaps and even catastrophe bonds.

It’s understandable that these companies will look at all of the available options they could utilise for retrocession, then make relevant decisions based on need for protection, efficiency, cost, availability of capital and how much risk they want to retain.

In the hard market reinsurers might be more motivated to retain some more risk over the next year, we are told.

This might reduce the participation in sidecars for some retro partners and investors, which can have ramifications for the rest of the ILS market, as investors might look to other insurance-linked securities (ILS) opportunities if their shares of some quota share sidecar arrangements are reduced.

At the same time, the reinsurance sidecar market has been growing and reached a record size of $10 billion this year, according to Aon.

In addition, there are new structures that have come to market this year and new sidecars planned for 2025 as well, we understand, so there will be additional quota share opportunities out there, while other cat bond and ILS funds will also provide valuable alternatives for investors.

A recent survey from Moody’s found that over the next year, reinsurance buyers have expressed a strong preference for catastrophe bonds when it comes to utilising alternative capital, while sidecars are also expected to see much more elevated demand.

Hannover Re may reduce K-Cessions sidecar for 2025. Reinsurers motivated to retain more risk was published by: www.Artemis.bm
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According to analysts at KBW, property catastrophe reinsurance pricing is likely to decline around 5% at the upcoming January 2025 renewals, with a continued balance in supply and demand expected to help prevent a more significant softening.

The analyst team met with companies at the 2024 Monte Carlo Reinsurance Rendez-Vous event this week and said that after this KBW remains constructive on the Bermuda market.

They explained that this is due to, “The expected combination of modest property catastrophe reinsurance rate decreases (with very stable terms and conditions), improving casualty reinsurance prospects (led by accelerating rate increases and declining ceding commissions), the enduringly positive specialty reinsurance operating environment, and still-rising portfolio yields should allow capable underwriters with (at least) adequate reserves to generate strong 2025E returns, barring unusually high catastrophe losses.”

They noted a considerable amount of unanimity on a lot of topics, likening this to groupthink, but also noted that “this tendency toward agreement will probably perpetuate the industry’s historical cyclicality, including an eventual soft market.”

On the cycle though, KBW’s analysts do believe that improving data and analytics may in future moderate the swings in the market’s pricing cycle, as better-informed underwriters can convene on more alignment on price and negate the need for massive increases and falls in price.

The consensus at the Monte Carlo event was that prices in property catastrophe reinsurance and retrocession are likely to fall, major losses remaining absent, the only question is how much.

KBW’s analyst team said, “Reinsurers anticipated flat to mid- single-digit risk-adjusted decreases and brokers foresaw 5-10% risk-adjusted rate decreases; we split the difference to adjust for the parties’ understandable biases and project risk-adjusted decreases within a couple of points around a 5% risk-adjusted decrease.”

Large primary property insurance price increases are thought likely to boost reinsurance appetites for proportional business as well, KBW explained.

But even with some softening, the analysts note, “Even with these expected modest y/y risk-adjusted decreases, reinsurers view U.S. property catastrophe reinsurance as well-priced, including much-improved insurance-to-value ratios.”

But they also cautioned, “In contrast, property reinsurance rates for other territories – notably European regions with recent significant flooding and/or hail losses – will probably rise somewhat in January, tempered by the view of Europe as a diversifier from the Southeastern U.S., which is still the industry’s peak catastrophe zone.”

On the all-important subject of attachment points, terms and conditions, KBW is not anticipating much in the way of changes, no matter how vocal brokers are about regaining some ground for their clients.

“We saw no signs of reinsurer willingness to materially lower attachment points or otherwise loosen policy terms and conditions tightened at 1/1, other than for individual situations,” the analysts said.

Adding, “We find the brokers’ ominous warnings of looming reinsurer irrelevance pretty unpersuasive; cedents’ understandable desire for now-scarce earnings volatility protection doesn’t diminish the need for, or value of, still-available balance sheet protection.

“Similarly, there’s far less reinsurer willingness to lower rates for lower tower layers than on higher layers that have mostly been loss-free.”

However, even if attachments stay flat there is some economic erosion to reinsurers potential profitability, given the influence of inflation and rising exposures, the analysts also state.

On the balance of capital in the market, which supply is up and the catastrophe bond and ILS market keeps growing, KBW’s analysts also highlight the fact that demand continues to rise as well.

Also of note, the market remains ready to hike property catastrophe reinsurance pricing at the first sight of a major loss event, it seems.

“Most executives suggested that property catastrophe rates would rise dramatically at 1/1/25 if there are significant catastrophe losses before year-end. We see more upside following significant losses than the mid-single-digit decreases we expect absent new major losses, but we think total upside is fundamentally limited (we’d crudely estimate maximum rate increases of 20-25% from current levels), beyond which reinsurance becomes a broadly inefficient source of capital or balance sheet protection,” KBW’s team said.

Property catastrophe reinsurance rates seen down ~5% at Jan 2025 renewal: KBW was published by: www.Artemis.bm
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Weather Risk Management Services (WRMS), a specialist Indian company that has created a successful business in offering agriculture and risk management services, including parametric or index-based climate and catastrophe insurance solutions, is targeting expansion in Latin America.

The company is to begin by entering markets across Latin America, naming Argentina, Paraguay, Colombia, Brazil, Chile, Ecuador, Peru, and Uruguay, but also with the rest of the countries in scope.

WRMS hopes its expansion to the region will help to promote and enhance climate resilience for sustainable growth in the area.

WRMA sees the region as ripe for targeting given it has a large agricultural sector, they are emerging markets, and feature increasing climate risk management awareness.

The company explained, “WRMS aims to bridge the protection gap by providing innovative risk management and insurance solutions designed to mitigate the financial impacts of climate events. This growth will also support the transition to a low-carbon economy through sustainable practices. The expansion efforts will focus on empowering local communities by building capacity and supporting their sustainable development initiatives. WRMS remains dedicated to fostering long-term resilience and sustainability, paving the way for a climate-resilient future in the region.”

Using the latest climate modeling tools and technology, as well as domain expertise, WRMS aims to create solutions that fit the local context and meet regional regulatory standards and cultural expectations.

WRMA aims to partner with local insurers, government agencies, NGOs, and agricultural cooperatives to aid in the implementation of its risk management and insurance solutions.

Using technology and hyper-local climate and socioeconomic data, the company will create insurance opportunities, using parametric trigger and index insurance techniques, to offer products such as cyclone insurance in Haiti and crop insurance in Honduras.

“The expansion in Latin America will prove to be one of the most significant milestones for WRMS, showing our commitment to support global climate resilience in some of the most weather-vulnerable regions,” said Mr. Anuj Kumbhat, Founder & CEO of WRMS. “We are committed to not only protecting businesses but also ensuring the sustainability of the local communities in these critical regions through our financial tools and customized solutions.”

WRMS expands parametric & index climate insurance solutions to Latin America was published by: www.Artemis.bm
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One of the takeaways from the Monte Carlo Rendez-Vous this year is that brokers are calling on reinsurance companies and ILS funds to provide more support for their clients frequency loss exposures and while the markets are in the main not overly keen, there is going to be more capital available to support this, including from some that will seek out well-structured aggregate opportunities.

The January 2025 reinsurance renewal posturing always begins in Monte Carlo and first out of the gates with a clear message to the market was Aon, whose Reinsurance Solutions division is asking reinsurance capital to “run towards risk” and help out on frequency or earnings protection for its clients.

That helped to set the tone and while the major reinsurers were unanimous in stating during briefings that they won’t change their stances on terms and coverage conditions, others are more open to exploring how to provide more aggregate limit options to insurers, so they can derive returns from this opportunity.

In our conversations in Monte Carlo over the last few days it was the smaller reinsurers and insurance-linked securities (ILS) funds that seemed most open to deploying capital to support aggregate or sideways coverage and earnings protection covers.

In fact, we spoke with a number of ILS fund managers that explicitly stated they have an appetite for this and that it is a larger appetite than a year ago, with mandates focused on delivering more protection a bit lower down the tower and to aggregates signed and ready to deploy at the January 2025 renewals.

So there is dedicated capacity that seeks out returns from these more challenged areas of the marketplace, but it is only going to be deployed if the terms and price are right, managers told us. We also heard that some retrocession focused collateralized markets may have a slightly larger appetite for aggregates this year.

Structuring is going to be key, if brokers are to secure their clients aggregate reinsurance limit at this year-end.

ILS managers all spoke about well-structured frequency covers, with robust event deductibles set at a relatively high-level.

That won’t suit every insurers, especially the more thinly capitalised that really wants a far smaller event deductible, or franchise. But managers are adamant they won’t be providing that kind of cover any more, suggesting it will be hard for those insurers to secure any aggregate protection again this year.

The other place in the market that aggregate focused limits may come from is any start-ups that come to market.

As ever, new reinsurance and ILS players typically need to be highly-competitive to deploy their capital, while also tending to be more open to alternative structures, such as aggregate coverage.

There is new capital coming to the market, although not in particularly large quantities. But this is another place more aggregate limit may be available for cedents.

Some of the larger property-catastrophe reinsurance specialists in Bermuda have also expressed some additional appetite for providing frequency coverage for clients at the end of year renewals, we found in conversations in recent days.

We don’t expect that appetite to be overly significant, while again these deals will need to be well-structured to secure the support required and event deductibles on aggregate covers will have to be far higher than they might have been a couple of years ago.

There is definitely a feeling among markets that expressing some, even limited, appetite for providing aggregate covers may help them in gaining access to the shares they want of the higher, per-occurrence catastrophe reinsurance towers. Unmodelled or less well-modelled perils, or all natural perils covers, are still largely seen as out of scope though, we understand.

This is the kind of give-and-take we’ve been talking about. There appears more flexibility in the market as a result, which will please both brokers and clients, while markets will double-down on scrutinising terms of aggregate covers to ensure they aren’t taking on undue or unexpected exposure.

More reinsurance capital to support well-structured aggregate covers at renewals was published by: www.Artemis.bm
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Client demand for risk capacity is “accelerating in all dimensions” according to Shiv Kumar, President of GC Securities, the capital markets and ILS specialist unit of reinsurance broker Guy Carpenter.

Speaking to Artemis around the 2024 Monte Carlo Rendez-Vous event, Kumar explained that the insurance-linked securities (ILS) investor-base has an opportunity to lean forward into these trends, to derive new opportunities.

“The ILS space has been very successful in addressing the need for property catastrophe risk capacity in the market over the past two decades. With increasing economic growth, inflation in property values and climate change, the demand from our clients for risk capacity is accelerating in all dimensions,” Kumar explained.

But added that, “We see some hesitation from investors in providing solutions for aggregate covers which include secondary perils and there is limited investor appetite for lower layers in the reinsurance tower,” while in addition “The market also struggles with E&S portfolios and program business.”

He also noted that, “The penetration of the ILS market beyond property catastrophe lines is being attempted but has been challenging.”

But urges the market to seize opportunities that are evident in clients needs, saying, “As more capital flows into the ILS space and the traditional reinsurance market remains robust, investors will have to lean forward in some of these areas to construct interesting and diversified portfolios. At GC Securities, we are committed to educating the market and broadening its footprint.”

Moving on to discuss challenges that ILS markets and investors might face, Kumar highlighted model-reliance and how certain views of risk can differ.

“The ILS market is very technical in that it is underpinned by third-party expert modelling,” he told us. “This is a desirable feature as it provides consistency and rigor to the market.

“However, the models are updated as new information becomes available but the updates are not implemented at the same time in the ILS and traditional market.

“This creates a potential situation where a tranche may look riskier under a new model version in the ILS space compared to what the sponsoring cedent or the traditional reinsurance market may see in a prior model version on their system.”

Kumar went on to caution that, “Investors should be careful to not price themselves out of business at year-end due to risk quantification variation in different model versions.”

Demand for risk capacity “accelerating in all dimensions”: Kumar, GC Securities was published by: www.Artemis.bm
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Even without any major catastrophe loss events over the rest of the year, Michael Stahel, Partner and Portfolio Manager at LGT ILS Partners Ltd., is not expecting a significant shift in premium from current price levels and notes the company will strategically shift capacity between areas of the market to source the best deal opportunities for its investors.

Speaking with Artemis at the 2024 Monte Carlo Reinsurance Rendez-Vous event, Stahel explained that LGT ILS Partners, the specialist dedicated ILS investment unit of the private bank and asset manager LGT Capital Partners, sees the end of year reinsurance renewal price discussion as likely to be nuanced, but also noted that it is important not to be complacent as loss events can occur at any time.

Discussing what drives the price conversation and what factors are front-of-mind at the RVS, Stahel said, “During this period of various conferences in Fall, one of the key questions from our investor base is usually where we see reinsurance pricing for the upcoming year, now that these conferences and meetings are taking place.

“We acknowledge, of course, that the ultimate price level for capacity depends on many factors.

“Each counterparty is distinctly different; underlying portfolios, strategies, market access and loss experiences vary significantly.

“These aspects, combined with important qualitative assessments, are ultimately driving the individual price for reinsurance for a primary insurance company.”

Continuing to explain, “The surprisingly quiet hurricane season currently implies that there should be sufficient capacity available for the renewal round 2025. However, such a discussion is clearly premature as market participants are very much aware that the hurricane season will continue for several weeks and is still able to generate significant activity.

“Living in Switzerland, I recall that back in 2012, I was mounting the winter tires on my car when hurricane Sandy made landfall in New York at the end of October!

“And whilst the level of inflation has seen a significant reduction in recent months, the adjustments in insured values typically lag considerably, and we still expect to see an adjustment for inflation playing a role in the regulatory risk assessment for 2025.”

Summing up that, “As such, even absent of any significant loss event until year-end, we do not expect any significant shift in premium from current price levels.”

Moving on to discuss the various areas where the LGT ILS Partners team source their investments for fund strategies, Stahel noted that not all are equal, in price terms.

“An interesting observation circles around the price difference between the cat bond market and the market for traditional reinsurance transactions. Especially in the first half of 2024, we have witnessed an influx of capital in the cat bond segment, leading to a lower premium compared to private transactions.

“At LGT ILS, we are indifferent around the transactions structure; we like clean and well-structured cat bonds, but with our in-house rated reinsurer Lumen Re, we can transact the same deal in reinsurance format.

“This allows us to strategically shift capacity between the markets, to accommodate the area where capacity is scarcer and placed at more attractive premium levels,” commented Stahel.

While the optionality of being able to access insurance risk in various forms and structures benefits the investor-base of the LGT ILS Partners funds, Stahel also highlighted that cedents can leverage this to their own advantage as well.

“Insurers and cat bond sponsors can apply a similar strategy,” Stahel told us.

“Issuing a cat bond is a longer-termed project, and a swift response to a potentially short-termed capital influx is difficult, if not impossible.

“It may however be advisable for insurers and cat bond sponsors to complete the work and internal approval process for a bond issuance and prepare the organisation to place a bond in the market, but with the clear strategy to only do so if the market is able to absorb the deal at favorable terms,” Stahel suggested.

No significant shift in premium from current price levels expected at renewals: Stahel, LGT was published by: www.Artemis.bm
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