Lloyd's insurers could follow Brit's trading platform lead
Brit has become the first major London-market insurer to begin trading on the Insurance Futures Exchange Services platform (IFEX), as companies look to diversify their securitised portfolios in the wake of the credit crunch.
Brit, which last week announced a 6% rise in premiums to £528m for the first four months of the year, is trading in insurance-linked securities (ILS) – the form of insurance risk distributed to capital market investors – on the platform.
The move comes amid a flurry of ILS-related activity, prompting suggestions that other Lloyd’s insurers could follow suit.
Amlin launched an ILS venture earlier this month, while Hiscox and Catlin have developed ILS functions. Benfield, meanwhile, has invested $50m in its investment management arm, Juniperus Insurance Opportunity Fund, part of Juniperus Capital, which launched on Tuesday.
Brit chief executive Dane Douetil said: “This move has enhanced our ability to manage our clients’ risk and shareholders’ capital effectively. The increasing liquidity in this market is encouraging and the trading of event-linked futures provides additional flexibility in our portfolio management.”
Event-linked futures (ELFs) are exchange traded futures contracts modelled on industry loss warranty reinsurance contracts.
ELFs are triggered by predetermined losses to the insurance industry.
ILS funds are increasingly attractive because they are largely insulated from the effects of the credit crunch, according to research by Standard & Poor’s.
The move by Brit is the latest in a series of changes to its capital management strategy, which include an investment in Norton Re II, a Bermuda-regulated insurer that writes catastrophe retrocessional business.
Currently, less than 10% of global catastrophe limits are covered by catastrophe bonds. In March, Willis chief Joe Plumeri described the convergence of the capital and insurance markets as an “industry megatrend”.