Rules Are There To Be Broken

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In a world where alternative capital is already regarded as a disruptive force, one Bermuda-based ILS fund is breaking even more rules. Tom Libassi and Paul Nealon, co-founders of ILS Capital, discuss with Bermuda:Re+ILS some of the company’s more revolutionary strategic plans.

The term ‘convergence’ has gone from buzzword to old hat and back to trendy again when it comes to the risk transfer industry in recent years.

Originally used to refer to money from the capital markets being put to work in the re/insurance sector via insurance-linked securities (ILS) or sidecars, convergence then became so commonplace and the mechanisms by which the money was invested so varied, that industry executives started using the word in the past tense.

Now a slightly new meaning is entering the industry’s parlance. Instead of talking about the industry as a whole, it is being used to refer to specific companies that are breaking the rules or blurring the boundaries.

No company epitomises innovation in convergence to a greater extent than ILS Capital Management, the Bermuda-based investment firm that melds the needs of traditional reinsurance buyers with the desires of capital market investors.

It transcends the limited property catastrophe-based products most players in this space deal in and packages risk in very different ways from others. As it explores the possibility of securing a rating, the company continues to challenge the norms about what constitutes traditional reinsurance or ILS—and what convergence can truly mean.

“People use the word convergence but, for us, that happened back in 1992 after Hurricane Andrew when money flooded into the market.

“That’s when our partner Don Kramer started Tempest Re and applied modern portfolio theory to the insurance market, bringing a Wall Street approach to the management of reinsurance risk,” says Tom Libassi, co-founder and managing partner of ILS Capital.

“The founding of Tempest Re was the real turning point. Our whole investment philosophy developed from there. Since then, things have become ever more sophisticated. What we are doing now dovetails with where we think the market will eventually go.

“I believe we are at a tipping point for this sector. I don’t think this market will just continue to grow steadily—it is about to rocket to new heights. If this is a $100 billion market now, it isn’t going to go to just $150 billion. We believe that, with true innovation and convergence, it has the potential to exceed $500 billion.”

See Bermuda:Re+ILS's complete interview.