Faries: ILS must take a leadership role in tackling emerging risks

Kathleen Faries has had a front row view of the rise of Bermuda’s insurance-linked securities (ILS) industry.

With a career spanning nearly three decades, Faries has witnessed and immensely contributed to the development of the Island as the preeminent hub of ILS, as the industry has become an increasingly substantial and integral part of the re/insurance world.

Following her appointment as chief executive officer of ILS specialist and fund manager Horseshoe, Faries sat down in Intelligent Insurer’s Re/insurance Lounge to discuss the sector’s changing role in the market and how Bermuda can retain its place at the forefront of the ILS world.

Changing times

With a CV that includes stints steering some of the ILS industry’s largest and most innovative companies, Faries has seen the market grow from a relative cottage industry within the re/insurance sector to the behemoth managing billions in assets that it is today.

You have to look no further than the breakneck speed of issuance so far in 2021, which is already well on track to break records, for proof that ILS has become much more than just a niche asset class attractive to specialist investors and industry players.

Within the market, the term ‘convergence’ was frequently batted about to describe the meeting of the ILS and reinsurance worlds as the sector expanded to cover an ever-growing list of risks, but with the distinctions becoming eroded and more capital flowing into the sector, Faries believes ILS has to take a more expansive role at the forefront of risk transfer.

She highlighted risks including climate change, cybersecurity and the uncertainty of the pandemic and future such events as areas where ILS can take a leadership role in the sector at large.

“There are many very big problems that ILS needs to take a central leadership role on. It’s going to take product innovation, collaboration, and a lot of capital,” Faries said.

“ILS has shown over the years that it can have a big impact and show leadership. It’s vital for us, the industry, to step up and figure out how to bring more capital to bear.

“What are the products we need to develop? What is the technology we need to bring to bear to be able to get more capital to these very serious and large problems?”

Horseshoe as a company is looking to play a key role in helping more investors enter the market, as well as using technology to build new products that cater to a growing demand for the asset class, she explained.

“We’re very keen to play in that central collaboration space, to bring investors together to think about how we can build new products and find a better way forward,” she said.

“We would like to be at the centre of that, and leverage our expertise, relationships, and data, to try to move that forward, so you’ll see us doing that more and talking about it in the future.”

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Centre of attention

With ILS growing into a global marketplace catering to a growing list of investors across the world, will Bermuda retain its place as the sector’s spiritual and financial home?

Other financial centres such as Singapore are eyeing the Island’s ILS market and attempting to set up similarly attractive regimes to entice new investors and managers to alternative hubs, potentially threatening Bermuda’s status and market share.

Fairies believes it won’t be so easy for would-be new ILS markets to replicate the success of what has happened in Bermuda, even as trends such as remote working erode some of the natural geographic advantages it has enjoyed in the past.

“The two things that are probably even more important right now are, first, the intellectual capital we’ve built up. You’ve seen Singapore, as one jurisdiction, is trying to duplicate what Bermuda has done around the ILS space and find its way into that industry.

“But that intellectual capital and the skills that have been built up in Bermuda take time—you’re not going to have that overnight.

“Also we’re very commercial—it is a marketplace, which is important. People want to be where the market is. The regulators and the government and the business community here all work together to try to continue that success.

“Those are the important things and they are what makes Bermuda unique.”

To view the full Re/insurance Lounge session click here