Brooks: ESG-focused Sustain ILS supports evolution of maturing ILS market

Newly launched Sustain ILS is looking to foster further evolution within the ILS sector as the innovative ESG-focused platform seeks to carve out a niche in the maturing market, Paschal Brooks has told The Insurer TV.

Brooks, the former CEO of AIG-owned AlphaCat Managers, and Justin Hull, previously managing director at Aspen Capital Advisors, unveiled Sustain ILS, a sustainable asset manager focused on the ILS market, late last week.

The platform combines traditional reinsurance underwriting with an ESG investment framework that has an emphasis on understanding climate-related risk.

Brooks and Hull are currently building out Sustain’s operations and developing relationships with strategic partners as it targets deploying capital at the 1 January 2023 renewals.

Talking to The Insurer TV’s Close Quarters, Brooks explained that Sustain’s investment philosophy is grounded in “a robust portfolio construction process” which includes quantitative catastrophe modelling and what he described as “traditional reinsurance evaluation”.

“What we’re adding in new is an ESG framework for cedant evaluation,” he said.

For investors, Brooks said Sustain will provide value in offering a modern approach to ESG.

“We want to move beyond blacklists and binary reviews, and we want to use an ESG evaluation methodology that will impact proportionately each and every investment decision and portfolio construction decision that we make,” he said.

“By using those factors to adjust, we’ll have a portfolio that we can build that is recognisable to anyone in the reinsurance market in terms of the individual components, but the weightings will be emphasising those companies and cedants that are better ESG performers, and similarly de-emphasising those that have more work to achieve,” Brooks explained.

And for cedants, Brooks said there will be “a clear and measurable benefit for progress on ESG goals”.

“To the extent that cedants are scoring better on our methodology, we will be viewing them as a lower potential risk or similarly more likely to outperform the cat models, and will be able to offer better pricing as a result,” he said.

Brooks said the progress made by the ILS market over the last 20 years “really is worth celebrating”.

“As far as innovations go in the financial markets, this one really is a win-win for all involved,” Brooks stated.

But the market is maturing, as evidenced by the slowdown in its growth in recent years.

“The question for us at Sustain was what can we do as a new entrant into a maturing market?” said Brooks.

“And that’s why we focused on sustainability because we think this is an important trend throughout insurance as well as the global economy.

“We think we can be a leader in this front in terms of encouraging further development and collaborating with stakeholders to drive improvements.

“Ultimately we recognise that our success depends on offering something unique, and so we hope that investors in the market will recognise that,” Brooks added.