We recently returned from a visit to London, where we met with as many of our (re)insurance and other partners as we could. It was time well spent, as it gave us the opportunity to present Awbury, what we are about, and what we are working on to those who make our business model possible; and whose support is a critical part of our franchise.
It seems clear to us that increasing interest in our E-CAT (Economic Catastrophe) business, where the retreat of the banks from a number of businesses is leaving whole areas of risk management underserved, is being driven by a combination of three factors: i), recognition of the sheer scale of the opportunity E-CAT presents; ii), in working closely with the Awbury team, the growing confidence of our (re) insurance partners in Awbury and the building of in-house expertise; and iii), the continuing, seemingly relentless pressures on pricing in traditional NatCAT lines . This creates the opportunity for the design and provision of solutions to complex issues and problems by those willing to engage with clients and work with them on tailoring structures and transactions which address real needs, thereby providing an economic benefit.
As a case in point, consider the fact that both the quantum and quality of the capital the banks are required to have is increasing inexorably, under both the Basel III and the Fed rules; with no real end yet in sight, as regulators compete to try to ensure that the level of fragility and instability shown by banks after 2007 does not return to undermine a still fragile global economic recovery. The intent may be admirable, but the consequences, whether intended or not, are already being seen in areas once considered to be core parts of any commercial bank’s business- such as the provision of Letters of Credit, Revolving Credit Facilities and even acceptance of Corporate Deposits. Such trends will only be exacerbated by additional regulatory requirements on leverage and liquidity due to come into effect over the next few years. As a result, a broad range of bank clients are increasingly receptive to considering different ways of addressing their risk management needs, recognizing that their banks may no longer be there for them. Paradoxically, regulatory behaviour runs the risk of creating the very instability it is trying to suppress.
We believe that this trend is secular and will prove enduring, generating attractive risk-adjusted returns for Awbury and its industry partners, while at the same time enabling us to address our clients’ needs.
-The Awbury Team