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The Rise of Enterprise Quality Software in Insurance-Linked Securities (ILS) Fund Management

Technology can deliver operational efficiency and competitive advantage for early adopters in the insurance-linked securities (ILS) fund management sector.  As noted by Artemis, software of enterprise quality is becoming increasingly important for ILS investment managers, particularly as they scale and manage portfolios of increasing size and complexity.  In 20 years of working with alternative investment managers, covering every conceivable strategy from event-driven, global multi-strat to ILS, we have noted one common theme about the most successful managers. Those who typically grew bigger and faster than the average all invested early in institutional class technology in the areas of trading, valuation, risk and operations. By contrast, those who didn’t invest early and relied for too long on spreadsheets, typically paid the price down the line with operational failures, failed investor due diligence, poor risk controls or lost opportunity in investment terms. In ILS in particular, our clients have grown faster and kept operation costs lower than average for their peers. So what is the opportunity presented to ILS fund managers and how can they harness technology to fully exploit it?

By Ian Murrin

20/07/2020

Technology can deliver operational efficiency and competitive advantage for early adopters in the insurance-linked securities (ILS) fund management sector.  As noted by Artemis, software of enterprise quality is becoming increasingly important for ILS investment managers, particularly as they scale and manage portfolios of increasing size and complexity.  In 20 years of working with alternative investment managers, covering every conceivable strategy from event-driven, global multi-strat to ILS, we have noted one common theme about the most successful managers. Those who typically grew bigger and faster than the average all invested early in institutional class technology in the areas of trading, valuation, risk and operations. By contrast, those who didn’t invest early and relied for too long on spreadsheets, typically paid the price down the line with operational failures, failed investor due diligence, poor risk controls or lost opportunity in investment terms. In ILS in particular, our clients have grown faster and kept operation costs lower than average for their peers. So what is the opportunity presented to ILS fund managers and how can they harness technology to fully exploit it?

Timing is everything

This is an ideal time to accelerate ILS portfolio management transformation through digital technology.  The ILS sector continues to expand, with increased capital markets support of reinsurance business, a good flow of recent collateralised reinsurance transactions and renewal rates expected to grow this year  The sector’s growth will be bolstered by the growing awareness of climate-related risks, including floods, windstorms and rising sea levels, and of course pandemics, as well as the need for improved risk transfer.  For the past year, the market has seen a flight to quality when it comes to where investor allocations are made, and this trend is likely to accelerate due to the pandemic, according to Artemis and S&P Global Ratings.

How our platform came about

Digiterre is a leading provider of specialist technology to the banking, insurance and investment management sectors including the ILS sector. The continued demand for new instruments, better operation controls during the pandemic, and greater levels of data integration have prompted the recent cycle of enhancements to our operational platform for ILS fund managers.

ILS instruments, such as catastrophe bonds, private placements and side cars, which encompass both life and non-life products, are a rapidly growing sector of the market, but no one has built systems to handle these “difficult to value” instruments – until now.  Our ILS platform provides fund managers detailed views of valuations, potential losses and cash balances in near real-time, at the portfolio, security and contract levels.  It’s this level of operational resilience which provides investors with the confidence they seek in times of market stress and dislocation.

The platform, and its recent enhancements, leverage our software and data engineering expertise – in the trading, valuation, risk and portfolio management domains – and our Cloud deployment and operational support experience gained from working with hundreds of banks, insurers and investment managers.  It combines this with event risk data – encompassing wind, fires and other natural events – and counterparty, liquidity and operational risks.  The result is an end-to-end suite of tools that supports the whole trade life cycle for ILS life and non-life investments.

What you need in your digital platform

Fund managers in the ILS sector require increased responsiveness and agility during rapidly changing market conditions, and only truly robust, scalable and integrated systems can offer this.

Our platform is an enterprise-class, modular, end-to-end operational platform for the insurance-linked securities (ILS) industry.  It supports fund managers across the whole trade life cycle for ILS transactions and assets, from initial data input and validation, to data analysis, optimisation and reporting, as well as portfolio management features, including both net asset values (NAVs) and loss calculations, cash management and forecasting.

The platform features real-time data feed integration from Bloomberg and its open architecture supports integration with other operating platforms, such as Aladdin, and with external services, such as AnalyzeRe.

Advanced software is likely to emerge as a crucial differentiator for ILS fund managers, as well as a clear sign to the clients of their institutional quality.  It enables them to reduce operational complexity, increase productivity and make optimal, data-led business decisions.

The winners in the ILS sector will be the organisations that effectively navigate the challenges associated with risk transfer, cash management and investor reporting while remaining commercially nimble and operationally lean.

I’ll be exploring the industry challenges facing ILS fund managers in more detail, and how technology can assist in solving them, at a virtual roundtable we’re hosting on Thursday 30 July.

If you would like to join the discussion please let us register here.