ILS market could reach USD100 billion
The Horseshoe Group was established in 2005 and is a leading provider of insurance management services to insurers, reinsurers, as well as insurance linked securities (ILS) structures such as sidecars and catastrophe bonds.
In June 2016, Horseshoe acquired IKONIC Fund Services allowing it to expand into fund administration (referred to as Horseshoe Fund Services). This followed what had previously been a highly successful joint venture for four years between Horseshoe and IKONIC – called ILS Fund Services – which focused on providing fund administration to ILS funds, combining IKONIC's expertise on the fund administration side with Horseshoe's expertise on the insurance administration and actuarial valuation side.
Horseshoe Group has a total of USD22 billion of assets under administration and is widely regarded as Bermuda's leading ILS fund administrator. Horseshoe has operational offices in Bermuda, Cayman Islands, Charlotte (North Carolina), and Gibraltar and is able to provide administration services in all those jurisdictions.
"We can help investors interested in establishing an ILS fund from the set-up phase to the ongoing administration and valuation work and also providing them with an infrastructure to invest into specific reinsurance structures as part of a true one-stop full-service offering," explains CEO, Andre Perez (pictured).
ILS funds typically comprise catastrophe bonds with three-year durations as well as collateralised reinsurance. There are two main groups structuring and launching ILS funds, says Perez.
"Firstly there are independent ILS funds managed by dedicated investment advisors. Secondly, there are what I call `grafted ILS funds' which are formed by established reinsurance companies. The latter group is capitalising on the reputation of their parent company and looking to leverage their internal technology and industry expertise," adds Perez.
Perez has over 25 years' experience in the insurance, reinsurance and alternative risk-transfer business, noting that since 2005 there has been continued growth and interest in Bermuda's ILS market. Back when Hurricanes Katrina, Rita and Wilma hit in 2005, the trail of devastation led to an estimated USD108 billion of property losses.
"At that time, reinsurance market rates skyrocketed and we saw a lot of reinsurance companies looking for additional capital. Hedge funds became involved as expected returns for ILS structures were in the mid-teens. Since then, the composition of investors has evolved with the addition of large pension plans and family offices who bought in to the low-correlation appeal of this asset class," says Perez.
Total capital invested in ILS is now in the region of USD70 billion. Horseshoe has a strong accounting backbone and a comprehensive set of skills including legal, corporate services, actuarial, underwriting and claims. "On the ILS fund administration side, this wide range of insurance expertise allows us to provide a meaningful review of valuations prepared by the investment manager," adds Perez.
Another area where Horseshoe can add value to ILS funds and their investors is in the area of portfolio allocation. Some investors may want assurance that if the manager has several funds that the allocation of deals between those funds is fair and in accordance with the offering document and will mandate the manager to contract with Horseshoe Fund Services.
"We are trying to help institutionalise this sector of the market," concludes Perez. He estimates that by 2020, the total AUM in the ILS asset class should reach or exceed USD100 billion.