Working to make aggregates work for us: LGT ILS Partners interview

At the reinsurance renewals earlier this year, insurance-linked securities (ILS) investment manager LGT ILS Partners did not want to walk away from clients seeking aggregate protection, instead taking steps to make aggregate deals work for the investment manager again.

We spoke with Christian Bruns and Michael Stahel, both Partners and Portfolio Managers at LGT ILS Partners recently as part of our series of showcase sponsor video interviews for the April 22nd Artemis ILS NYC conference, held in New York City.

Michael Stahel explained that his firm saw a number of positive shifts in the reinsurance market at the January renewal season.

These positive shifts are coming as the industry absorbs and digests the impacts of multiple years of high catastrophe losses, which at recent reinsurance renewal rounds have enabled LGT ILS Partners to improve the quality its portfolios of risk.

One area of particular focus was aggregate covers, which in recent years have experienced relatively significant attrition from catastrophe events.

But Stahel explained that it is still important for the market to provide valuable coverage to ceding companies, explaining how LGT ILS Partners views these transactions.

“There’s a big discussion around them and we understand many ILS managers have started to retreat from aggregate transactions, or shift away from them entirely,” Stahel explained.

But noted that, unlike some market participants, “We’re not that negative on these types of transactions.”

Stahel explained that LGT ILS Partners sees itself as a partner to primary insurance companies, with reinsurance its sole offering.

On aggregates he noted of clients, “They’re buying the protection as a hedge, yes, but also as an element of their capital pool that they are able to show to their rating agencies and predominantly the regulators.

“Aggregate transactions form a vital part of that purchase, so we don’t think that we shouldn’t support our clients, our counterparties, that’s the way we view our cedents, as our clients.

“We don’t want to just walk away from these type of transactions, because we can see that they’re needed. They’re an integral part of how such primary insurance companies are ultimately capitalised.”

LGT ILS Partners worked with its clients, the primary insurers, to get to a level of aggregate coverage that was both effective and useful for their protection and capital needs, while also palatable to invest in.

“Rather than walking away, we were working hard on improving the terms so they (aggregates) are working for us again,” Stahel said.

He highlighted the importance of responding to client needs in this way, while ensuring the products invested in fit with the view of risk that can deliver the returns investors expect from ILS strategies they allocate to.

While LGT ILS Partners has seen a “fundamental hardening of the market and hardening of terms”, Stahel said that the team at LGT worked hard on terms at the renewals to, “Make aggregate transactions again a capital protection, rather than an earnings protection type of transaction.”

Hear more from Stahel and Bruns on reinsurance and ILS market conditions, as well as important topics such as climate change and ESG in the full video interview, which can be viewed below.

For details of the conference, visit the event website: www.artemis.bm/ils-nyc-2022/.

The full video interview is embedded below and can also be viewed in full, along with previous Artemis Live video interviews here.