Half a dozen more ILS funds will go for in-house ratings: Aon

Some four to six carriers are working on rated collateralised vehicles, following in the footsteps of Lumen Re and Humboldt Re, said Aon managing director of ILS management Steve Britton.

These in-house platforms enable ILS managers to offer rated solutions without relying on third-party fronting agencies.

But in spite of this wave of rated start-ups, Britton said he did not agree with some commentators’ view that within five years all collateralised vehicles would have moved to a rated platform.

He was speaking at an Aon United ILS day in London last week.

Bermuda and Guernsey have so far hosted the hybrid rated collateralised start-ups. London’s new ILS framework – which has so far focused on cat bond and sidecar launches – could be hampered in attracting broader ILS underwriting vehicles, Britton suggested.

This was due to a lack of “grace period” on offer around collateral renewal dates, meaning firms could have to post double collateral around contract rollovers.

Also at the event, Aon’s head of capital advisory Eric Paire spoke of the broker’s ambition to open up access to distribution facilities to ILS investors.

Paire pointed to the fact that Lloyd’s has signalled an ambition to attract more follow-form capacity from third-party capital.

Aon was in a good position itself to offer this kind of passive portfolio, whether tailored to specific lines of business or across a broader portfolio, and would be keen to help Lloyd’s build its own tracker, he suggested.

Furthermore, the firm could look to offer distribution facilities such as Aon Client Treaty to ILS investors. The treaty is supported by a number of reinsurers that obtain a slice of Aon’s Lloyd’s brokered business.

Comprehensive data is available to support any such passive portfolio offerings, Paire said.

Meanwhile, he suggested that creating reinsurance solutions to address the protection gap of uninsured exposures is an exciting proposition because there is a “blank sheet of paper” ready for ideas.

This differs from the way ILS providers had been pushed to mimic reinsurance cover as they have expanded their share of the existing catastrophe market, he suggested.

Instead, solutions could be built directly with ILS markets, without necessarily having to follow insurance market products and processes.