Insurance-linked securities (ILS) investment fund manager Fermat Capital Management has entered into a partnership with ICEYE, a provider of satellite data and services to inform decision-making and analysis, to gain more granular data and insights into flood events and other natural hazards.
The collaboration will see the pair working together to explore how world monitoring data from ICEYE can help the ILS sector improve its returns, enhance investor relations, while at the same time increasing climate resilience.
The strategic agreement will see ICEYE providing ILS manager Fermat Capital Management with near real-time flood hazard data and support for research and development into other natural perils.
Fermat will benefit from access to high-resolution flood data for large-scale events, which will include information on flood extent and flood depth at the building level.
ICEYE can provide such granular hazard and damage data thanks to having the world’s largest SAR satellite constellation, as well as various auxiliary sources.
The partnership will also involve an exploration of new potential use cases for the high-resolution satellite derived data, including for wildfire-related events.
“ICEYE has established a proposition that is unique in the market. Its SAR satellite constellation and AI capabilities generate critical natural catastrophe intelligence in near real-time,” explained John Seo, Co-founder and Managing Director at Fermat. “We are excited about the potential of this new relationship. It enables us to provide our investor clients with additional insights. Just as importantly, it creates significant opportunities to broaden the private re/insurance and ILS market’s role in enhancing resilience to climate shocks.”
“Our alliance with Fermat, a pioneer of insurance-linked securities, marks our entrance into this highly dynamic and expanding marketplace,” added Rafal Modrzewski, CEO and Co-founder of ICEYE. “Fermat has been at the center of the ILS sector since its inception, and through our collaboration, we aim to facilitate the continued evolution of this market by enabling a deeper understanding of natural catastrophes.”
“By providing ILS fund managers and investors with high-resolution insights, ICEYE is enabling a stepchange in how the capital markets approach high-gradient perils such as flood,” Andy Read, Global Head of Government Solutions at ICEYE also commented. “Alternative capital plays an important role in maintaining the resilience and stability of the re/insurance market in the face of natural disasters and therefore, ultimately, of communities themselves. Understanding the impact of flooding in near-real time is essential to the ongoing evolution of this sector and for developing solutions that will help communities better manage and respond to floods and other climate shocks.”
Thanks to its own satellite constellation, ICEYE can provide users such as Fermat Capital Management with access to an entirely new level of persistent monitoring for any location on earth.
As well as offering high-resolution imagery and granular insights into current natural catastrophe events, data such as this could also be utilised as the inputs to construct parametric triggers in future.
As such, collaborating with one of the world’s largest ILS fund managers may help ICEYE to develop offerings that are tailored to helping ILS capital cover more of the world’s natural hazard and climate related risks, ultimately helping to enhance global resilience.
We’ve been writing about the use of satellite and sensing data in risk transfer structures for well over a decade and it’s only now with the advanced technology available today, and satellite constellations like ICEYE’s, that services like this are significant traction across insurance, reinsurance and ILS, something we expect will accelerate.
In light of this news, Artemis spoke with Daniel Stander, a Senior Advisor to ICEYE.
Stander told us that he expects this collaboration could advance the understanding of so-called secondary perils.
“The impact of so-called ‘secondary perils’ on portfolio performance has emerged as a key theme in recent years. Wildfire in particular has attracted investor attention, with three of the last four seasons generating insured losses in excess of $13bn in the US alone. As a shifting climate threatens to further erode returns, the need for more analysis of this peril has become a market imperative,” Stander explained.
Adding that, “Fermat’s R&D collaboration with ICEYE on wildfire will doubtless improve understanding of this increasingly peak peril. That will help with portfolio management. More than that, though, this improved understanding will create opportunities to securitize wildfire risk in new and more effective ways.”
Which is where this type of technology gets really interesting to us, in furnishing ILS fund managers with the data, insights and near real-time views of risks to enable it to be transferred more efficiently.
Stander also believes that this collaboration is important for how ILS managers respond and react to events.
He told us that, “Access to near real-time data on flood extent and depth will enable a fund manager to provide their investors with a level of situational awareness that has hitherto been impossible.
“It’s the size of ICEYE’s constellation – coupled with both the resolution of its SAR and the breadth of auxiliary data sources – that enables this step change in the speed, consistency and granularity of insights.
“This is potentially transformative. ILS funds – and, should they wish, their investors – will be able to grasp probable portfolio impacts from a given event almost instantaneously.”
Finally, this also has ramifications for so-called live-cat trading and secondary market trading activity for ILS funds, with more granular and rapid insights able to be used as inputs to trading decisions, alongside portfolio management.
“The speed and accuracy of the data which ICEYE provides has the potential to generate significant benefits for organisations trading in the secondary markets. Access to near real-time hazard insight can feed decisions on whether to trade up or down while an event is unfolding,” Stander said.