6/1/2023 0 Comments Cryptocat catsThe ILS market has allowed hedge funds, pension funds and other non-insurance traditional investing institutions to tap an additional source of high, uncorrelated returns. These ILS instruments, which include catastrophe bonds (colloquially known as CAT bonds) are issued by special purpose vehicles to external investors whose funding pledges provide the collateral to backstop the reinsurance risk. Ever since, Bermuda has been the world leader for regulating ILS and one of the top three reinsurance hubs in the world. Ziolkowski is proposing a new version of so-called insurance-linked securities (ILS) that first arose in Bermuda after Hurricane Andrew in 1992 left insurers with a then-unprecedented $15.5 billion bill. And crypto could contribute to solving it. Many fear a lack of catastrophe risk insurance will tank housing markets in Florida and elsewhere. It’s a really big, little-discussed problem. Here’s the problem: Insurance claims triggered by Hurricane Ian’s record-breaking destruction last month – with total losses seen as high as $75 billion – have combined with elevated uncertainty around climate change and with the general investor risk aversion stoked by rising interest rates to leave hedge funds and other entities reluctant to commit capital to the industry. Other people in the Bermuda insurance industry told me that the full-year 2023 shortfall in reinsurance is as high as $60 billion. 1, $20 billion in reinsurance contracts are due to roll over – meaning they’ll need to be refunded – and that the estimated amount committed is just $2 billion. ![]() In our “Money Reimagined” podcast this week, Ziolkowski said that on Jan. It could be a solution to an alarming multi-billion-dollar shortfall facing the reinsurance industry, a vital sector that exists to absorb the risks taken by insurance companies so the latter can continue to expand their policy issuance. He wants to offer investors in staked token pools the chance to apply those holdings as collateral for special purpose vehicles that underwrite reinsurance contracts. ![]() It’s based on an idea from Joe Ziolkowski, the CEO of crypto-focused insurer Relm. At a time when the industry needs to emphasize real world applications – rather than simply riding the boom-bust cycle of “number go up” speculation – this one’s a doozy. Conversations I had on the island during the Bermuda Tech Summit this week have led me to believe there’s a huge opportunity to combine those two strengths into a powerful use case for crypto.
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