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US specialty a diversifying opportunity for ILS capital: AM RE CEO Barder

Updated: Sep 30, 2021

There is a clear opportunity for ILS funds and investors to partner with expert originators and underwriters to access the returns of US specialty business, according to AM RE Syndicate Inc. Chief Executive Officer Shevawn Barder.

At our virtual ILS Asia 2021 conference today, Barder treated the audience to a keynote presentation on the US specialty lines opportunity and why it should be attractive to investors and also reinsurers from the Asia region, as well as the rest of the world.

Barder said that she wanted to help identify this clear “opportunity for Asian reinsurers investors and capital providers to tap into the US primary market.”

Barder explained that in the United States “insurance and reinsurance products underpin the smooth running of the economy” and how the industry continues to adapt to support this.

Focusing on the US property and casualty sector, Barder noted that in 2019 this market alone saw $638 billion of premiums written, requiring “significant reinsurance capacity.”

She moved on to explain how the US program segment of the market works, saying that the MGA model has become increasingly sophisticated and that “they have a very specialised and focused business model, and a very low cost infrastructure,” making them ideal for capital partners to work with and “an effective way to access the primary US market.”

Barder further explained that, “Increasingly, it’s become common for ILS fund managers to work directly with reinsurance intermediaries and MGA’s. Some ILS fund managers have even developed their own MGA’s.

“Similar to how large institutional investors, such as pension funds, work with reinsurers to access risk through structures like sidecars, they can do so in a bespoke way by partnering with a reinsurance intermediary.

“In fact these relationships are proving themselves to be an innovative and flexible way to access primary sources of US risk.

“These partnerships can be used to access a variety of US based risks, such as property catastrophe, or more predictable low severity, non-nat cat risks in a more efficient manner.”

Working with an MGA partner, such as a reinsurance intermediary like AM RE Syndicate, means investors and reinsurers can put their capital behind an origination focused underwriting partner, to gain access to business they may not otherwise find it easy to source.

“Programme business requires a special skill set,” Barder explained. “It is written on a quota share basis, is highly detailed and requires a technical underwriting approach further supported by in depth analytics.”

Importantly, she further highlighted that in this model, “all participants interests are aligned for a profitable outcome.”

It’s diversifying as well, as the US specialty business AM RE writes on behalf of reinsurance capital partners is, “Primary US grass-roots business, written by expert underwriters with focused distribution networks. It is low limit, low severity, minimal nat cat exposure and well geographically spread.”

Continuing, “Primary US business is inherently stable, well spread and can be structured to avoid nat cat and aggregation. This type of portfolio is a natural hedge against a nat cat portfolio of property risk for example.”

Barder explores the clear opportunity for ILS investors focused on accessing reinsurance linked returns to partner with businesses like AM RE.

“We see the market continuing to evolve as insurance and reinsurance capital is increasingly fluid, which will naturally benefit ILS funds and institutional investors.

“ILS funds and investors partnering with reinsurance intermediaries can work to build programs, tailored to their desired risk and return profiles. For example of an investment vehicle was developed with AM RE there would be an opportunity to add more attritional low limit primary market risks to a portfolio. This approach could lead to investor securing a tailored risk return profile,” Barder said.

Her keynote speech went on to explain that there is a capacity need that can be capitalized on right now, while at the same time the hardening market means rates have been rising.

Following the insightful keynote from the AM RE CEO, Shevawn Barder participated in a Q&A interview with Artemis Editor Steve Evans.

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