Market updates and sector developments

A recent SIGLO Capital Advisors study estimates that the global ILS market is slightly over US$100bn in size and, as such, equates to roughly 20% of overall global risk-bearing reinsurance capital. The private ILS market segment accounts for around 60% of this total, while the public catastrophe bond market segment accounts for the remainder. The top 20 ILS managers were reportedly overseeing US$81bn, as of June 2023.

The SIGLO study collected key characteristic data of investable open-ended ILS funds, as of June 2023, and analysed the data received from 52 different funds equating to US$27bn of managed assets exposed to ILS. Of these funds, 16 have at least 90% of their NAV derived from investments in public cat bond transactions, while 16 others consist of investments that are almost exclusively exposed to private ILS transactions. A further 20 funds consist of a mixed allocation to cat bonds and private ILS transactions.

The study found that the typical open-ended ILS fund size is less than US$500m and almost half of the funds offer a no-loss return that ranges between 10%-15% per annum, relating to an expected loss range of 2%-4% and a CVaR 99% between -20% to -40%. About half of the risk (expressed as expected loss) is driven by US wind and the remainder by US earthquake, other natural catastrophe, European wind and Japanese wind perils. Finally, cat bond funds demonstrated a more homogenous modelled risk profile than funds with an allocation to private ILS transactions.

The aim of the SIGLO study is to provide the investor community with a detailed overview of the investable ILS product landscape, supporting the need for more transparency and comparability by objectively describing the investment opportunity set, as well as corresponding risk and challenges. “The heterogeneity of the ILS market can be a hurdle for investors to gain interest and trust in the asset class. The investor community may find it challenging to build an informed opinion to assess and compare the attractiveness and risk of the different products and consequently to design and build an ILS investment portfolio tailored to their specific needs,” the firm observes.

In other news…

Aira inks heat pump ABS
Clean energy firm Aira has secured €200m in debt commitments from BNP Paribas, whereby the firm is set to pioneer the heat pump securitisation asset class. The warehouse financing facility will facilitate the installation of Aira heat pumps in thousands of homes across Germany by what the firm describes as “supercharging” its zero upfront, consumer financing model.  

Transforming residential heating and moving Europe off fossil fuel-based boilers will require substantial financial investment - not only to develop and install the technology, but also to make it accessible and affordable. The BNP Paribas facility therefore represents the beginning of Aira’s ambition to bridge this financing gap.

“Clean and affordable home energy solutions is a crucial component in the transition to an inclusive net-zero economy. We are pleased to support Aira on this important initiative to accelerate heat pump adoption and the energy shift. This partnership not only aligns with our strategic goals of fostering sustainable investments but also represents the opportunity to develop an innovative asset class in Europe," comments Eirik Winter, ceo of BNP Paribas Group Nordic region.

Ambac acquires controlling stake in Beat
Ambac Financial Group has acquired a 60% controlling stake in Beat Capital Partners for approximately US$282m, up to US$40m of which will be paid in shares of Ambac common stock. The remainder will be paid in cash and is subject to closing adjustments, with the transaction expected to close in 3Q24, subject to regulatory approvals.

Pursuant to the agreement, Ambac will purchase 60% of Beat from existing shareholders, including Bain Capital and Beat’s management team. Consistent with Ambac’s philosophy of financial alignment of interests with its business partners, Beat’s management team and Bain Capital each will retain an equity stake of approximately 20% in Beat. 

Beat partner and chairman John Cavanagh will continue to manage the business as part of the senior leadership team. Since its inception in 2017, Beat has launched 13 underwriting franchises and MGAs. In addition, it has the management rights for Syndicates 4242 and 1416 at Lloyd’s and an exclusive capacity relationship with a Bermuda reinsurer (Cadenza Re).

Beat’s businesses produced US$533m in combined gross premiums and approximately US$17m in EBITDA in 2023. With the addition of Beat, Ambac’s specialty property and casualty insurance platform is projected to generate in excess of US$1.4bn in gross written premiums on a combined full-year 2024 pro forma basis.

Corinne Smith