Reimagining Risk and Reinsurance (& Cat Bonds) with Chris McKeown of Vantage Risk

We’re looking into the far reaches of the search for yield in this episode, diving into investors’ interest in so-called Cat Bonds, or catastrophe bonds, and the world of reinsurance and ILS (insurance-linked securities). Yes, even the biggest risk-takers need backing – and we’re talking Reinsurance with Chris McKeown, Chief Executive of Reinsurance, ILS, and Innovation at Vantage Group Holdings. Take a trip with us and daydream about Bermuda as we define reinsurance: the secondary market & their clientele, capital protection, the risk transfer process and what efforts go into sorting through claims, what disaster gaps are, and how reinsurance is helping aid areas in vital need of protection. We’re discussing Cat(Catastrophe) bonds, ILS, Pop & Drop Hurricanes, Climatology, tight ecosystems, secret handshakes, and why Bermuda is the central hub for reinsurance. Chris explains the importance of adjusting models to deploying capital, why cat bond investors rely on these models, and what structural issues the business of reinsurance is facing in an upside market, trying to bring investors in.

Find the full episode links for The Derivative below:




Check out the complete Transcript from this weeks podcast below:


Reimagining Risk and Reinsurance (& Cat Bonds) with Chris McKeown of Vantage Risk

Jeff Malec  02:55

Hi, everyone, thanks for joining us today. We’ve got a doozy for you with this episode as I try and wrap my head and turn your heads around the world of reinsurance insurance linked securities, cat bonds and the billions of dollars that switch hands between insurance companies, Bermuda base reinsures, and some of the largest investors in the world. Our guest today is Chris McCown, the chief executive of reinsurance and iOS advantage a tech enabled and data driven private reinsurance company based in Bermuda. Welcome Chris.


Chris Mckeown  03:03

Thanks, Jeff. Thanks for having me.


Jeff Malec  03:04

No worries. How did I do ok on the last name I forgot to ask you the pronunciation


Chris Mckeown  03:08

Its fine, it’s pronounced McCune but you’re close enough.


Jeff Malec  03:15

I got the M correct. So where in the world are you?


Chris Mckeown  03:20

Um, In my house. I’m located in Concord, Massachusetts.


Jeff Malec  03:25

All right, known for some colonial time.


Chris Mckeown  03:28

Yeah, because some people call it the birthplace of our nation but it’s got a lot of history to it a lot of literary history as well. It’s a great place to live in just outside of Boston, which is a hub of the universe great city,


Jeff Malec  03:40

a stock city not insurance you’re supposed to be down there in Hartford, Connecticut, and the insurance


Chris Mckeown  03:45

that was, it was the insurance capital of the world. I think that might have shifted a little bit over the years but insurance seems to be congregating in London, Bermuda certain cities in Europe but Hartford is still a big city for insurance. That’s true. I’ve never worked there never lived there.


Jeff Malec  04:04

And do you travel to Bermuda then quite a bit you guys are headquartered there?


Chris Mckeown  04:08

Yeah, Vantage is headquartered in Bermuda and I, my formative underwriting years were spent in Bermuda 12 years and then moved back to the states in oh nine lived here in Concord since but have started up and been involved with couple startups in Bermuda since then, so you can move back and forth. It’s a pretty easy, easy commute, except for the last year and a half. But yeah, so readily available. jurisdiction and in place to get to and a great place to do business.


Jeff Malec  04:36

Awesome. I was supposed to do the Newport to permit a yacht race once but didn’t make it I did Newport to black Island instead. But that was just as fun but so never been to Bermuda. So I’m putting it on the list.


Chris Mckeown  04:50

It’s a great place. lovely people lovely weather. Really business-focused government and regulatory body that you know it’s been a real success for the insurance and reinsurance business in particular and increasingly for the iOS investors awesome.


Jeff Malec  05:12

So give us a quick personal background yourself how you ended up in the insurance business and then culminating and Vantage launching and your role there


Chris Mckeown  05:22

sure Yeah, that’d be going back a long way but like a lot of people I landed in insurance reinsurance somewhat by mistake or by luck, but started my career as a reinsurance broker for guy carpenter, which is a subsidiary at Marsh McLennan worked there for 14 years and then moved to Bermuda and 98 and started working for a company called Ace Tempest or Ace which is of course now the mighty chub and became an underwriter portfolio manager there in oh four was recruited by a civil investment group to build out a pretty pioneering effort in the reinsurance space through funds managed by Citadel into the what’s called the collateralized reinsurance or early iOS space and did that for a few years and then in oh nine went back to guy carpenter. And then as I say, in 2013, I started a company called New ocean which was an asset manager dedicated to the iOS space and now just recently came back into the reinsurance space after doing a little bit of a tour in the insurer tech world for the last couple of years to join Vantage, as you say, a data-driven tech-enabled vision that is chaired by our non-executive chairs you know, Sera Donna who’s got no end of enthusiasm and energy and charisma for the business very successfully ran arch capital for years and then our CEO is Greg Hendrick who’s got a broad intellectual curiosity across insurance and reinsurance and how we can purpose-build a company for the future of what we see that the emerging issues that are affecting our society but also insurance in particular and that that’s Vantage so I’m excited to join the team and it’s an all-star team. It’s been great.


Jeff Malec  07:12

And so I want to say blue ocean, but it was new ocean, new ocean




Chris Mckeown  07:17

Yeah, there was a blue ocean we’re running out of names. That’s what you see new a lot. And you know, there’s ocean there’s, yeah, point is a very popular piece of reinsurance and insurance companies. But yeah, so Vantage, when we came up, came up with Vantage, the list was fairly short of viable, viable names that had had some punch to them. But yeah, we started Vantage, just a year ago, literally, we got our funding and our am best rating in the month of October 20 2020. So all during COVID it’s been a real a real journey to be here to talk about Vantage insurance reinsurance and what we call iOS insurance linked securities.


Jeff Malec  07:57

And quickly on your new ocean that was your own, that was a hedge fund essentially was a


Chris Mckeown  08:02

is you could call it an alternative asset manager basically would be described as, as the idea is that you provide access directly to the insurance risk through investable vehicles from for third party investors, pension funds, family offices, sovereign wealth funds, hedge funds, who can you know, who can invest in a variety of forms there, there are funds and then there are what’s called special purpose insurers. And there’s a mix of the spectrum I should say of investable alternatives for for non insurance companies who don’t want to or known investors that don’t want to own an insurance company through private equity, nor do they or do they want to own it through, you know, through public equity, that this is an alternative way to access that risk.


Jeff Malec  08:53

And then Vantage I’ll just quickly touch on you mentioned so you guys were backed by P launched a year ago. So who were those private equity firms?


Chris Mckeown  09:01

Yeah, we’re proud to have Carlyle and Hellman and Friedman as are effectively 5050 owners with along with management, of course, that have seen the issues that have started to plague the insurance business, there was a little slow moving, but if you can see the trends, the timing has been has been great that large balance sheets been withdrawing from certain lines of business, we have an increased frequency of events driven by climatology, and that need to be addressed and then the use of technology and data is going to be instrumental in our you know, in our business going forward and unburdened by legacy systems, legacy reserves or legacy ways of thinking. They provided a billion dollars of initial equity capital to us. So which is which is Not I wouldn’t call it table stakes but in the insurance reinsurance world you’d certainly have to have a certain amount of capital to a to get a rating from we have an N best rating of A minus as well as to be accepted as a counterparty credit to insurance companies and other trading partners. So very happy to be launched by knowledgeable private equity firms in this space. With as I say, dinos to your dog and Greg Hendrick at the helm. It’s been, it’s been a great, great, great journey so far.





Jeff Malec  10:28

Awesome. Those are two good names to have on the investor list. So let’s start at the top of we couldn’t could you define exactly what reinsurance is, and what the fullness of it is, is that a word purposefulness? Yeah, definitely. It’s a very, very big game for us reinsurance


Chris Mckeown  10:54

Sure. And I yeah, I appreciate for some of your listeners, this might be a little bit of a of a diversion into another world and some of the nomenclature might need a bit of translation but I’ll do my best. Your reinsurance is basically the secondary market for insurance companies perform a very vital role in finance, both consumer and business and commercial insurance, providing liquidity in the case of insurable losses, whether their liability losses or you know, think of large scale hurricanes or earthquakes that affect a large swath of the portfolio that insurance company might write they look to the reinsurance business reinsurance market to offload that risk and provide that that themselves liquidity and financial flexibility around managing those liabilities on their own balance sheet so it’s reinsurance is effectively insurance for insurance companies. And there’s a secondary market or I should say a tertiary market Jeff of what we call retrocession reinsurance so reinsurers provide that capital in that capacity to insurance companies who obviously in turn face the customer behind reinsurance companies. There’s a there’s another round of trading that’s called retrocession reinsurance most of the amongst reinsurers themselves, but also where iOS insurance linked securities, third party investors also played a pretty, pretty significant role


Jeff Malec  12:24

and into the purposefulness.


Chris Mckeown  12:27

Sure, the insurance in this day and age, we’re all thinking about how we sort of impact our globe and our society and each other, you know, insurance is always has always been there to provide protection for you know, for losses to your, to your automobile, to your home to your business. And that, you know, that that reason for being allows societies to, you know, to continue economies to thrive and societies to rebuild after disasters, like hurricane Ida, and the European floods this summer, that, that that’s a vital function to provide that that financing of resilience and resiliency to natural catastrophes in particular, but also the pandemic and, and liability crises such as, such as, in the past, as fast as for environmental issues is where the insurance and reinsurance business plays a vital role of Finance. And so that that is, is, it’s great. And I think the issue that we’re all grappling with us as an industry is, are we doing enough are we are we are providing enough protection and insurance across the globe, across all societies to provide that economic resiliency for you know, for the engine of economies? And, you know, the answer really is not yet we insurance is fairly concentrated in in developed countries, and the infrastructure and the overall commitment and the ability to commit to a to an insurance market is just beginning in a large part large parts of the world. And so, as an industry, we’re always looking for ways to follow the law of large numbers, the more diverse your portfolio of insurance risk is, the better off you’re going to be as an insurance company. And so to be concentrated in certain risks creates volatility that you’d rather obviously find ways to damp and so as an industry we’re looking at, we look at things called what we call the disaster gap where events happen in certain areas of the world to Katie, you can take a lot of places where you know that that that infrastructure isn’t there yet and you know, what are we going to do to help encourage that, and in the meantime, in developed areas, we still have a lot of work to do in terms of selling product that consumers that consumers will buy and the consumers will continue to buy and sell We I see insurance as a growth market and reinsurance as a growth opportunity. In an ever increasing sort of world, it’s more, there may be more risk because of like climatology and pandemics and what have you. But there’s certainly a more of an awareness of risk in our society that, that we need to address as we as we as we grow. And


Jeff Malec  15:22

I love that, but it’s not all altruistic, right? Like people are in the business to make money. Absolutely. Yeah. But they as they should, they’re taking on that risk. So it’s a risk transfer process.


Chris Mckeown  15:32

Right? That’s right. Yeah. And that’s, you know, that that’s what that’s what through is a natural sort of confining aspect of our business, there’s just some areas that some risks that you can’t, you can’t make money on. And that’s, you know, you avoid those risks. But, again, going back to that concept, that the more that the larger the pool of risk that you’re insuring against, the better off your results should be assuming you can get the price, you know, that that that should be encouraged. And insurance is generally, when we talk about reinsurance, it really is focused in in fairly developed areas, North America, Europe, Asia, and those are sort of the concentrations of risks that we deal with in the reinsurance space.


Jeff Malec  16:19

And who are the customers of reinsurance the biggest insurance companies in the world? We’re talking right?


Chris Mckeown  16:26

Yeah, they’re they all these, you know, the large, the large, large national names that you think of in the United States and global No, global insurance companies all buy reinsurance for a variety of reasons, providing earnings protection, capital protection against, you know, various lines of insurance and reinsurance that they themselves, right.


Jeff Malec  16:47

And just lay that out in numbers were so USA as my insurance, so they maybe want to cap their liability at $10 billion or something, I don’t know the numbers. And then the if they have 15 billion of risks, they’ll offload that extra 5 billion to the rancher? That’s


Chris Mckeown  17:05

correct. Yeah, the USA is a unique company, but all companies have a mission and have a have a need to continue to support supply sustainable product to their, to their, to their customers. As I say USA has an extra mission above and beyond for ex service members and their families. But the idea is that to maintain and protect the capital base, their own balance sheet to continue to provide those products for years and years means that they want to cede some of the volatility away from their balance sheet. So in servicing their members or their insurance, they will, you know, will continue to write business in certain areas that are prone to natural catastrophes and will not want to sort of shut that off, right, they want to provide that service in that in that product. But that adds up. And so you end up with an exposure to events that would be meaningful from an either an earnings perspective or even potentially from a capital perspective. And hence, that’s the that’s the piece that they then ask reinsurers to, to provide coverage for. as it in a trust way, you know, above where they’re comfortable maintaining the risk on their balance sheet.


Jeff Malec  18:20

And that would it be fair to say like in parts of Florida or Louisiana or Texas like you either couldn’t get it, Hurricane insurance would be prohibitively expensive for individuals if there weren’t reinsurance if the insurance companies couldn’t offset that risk.


Chris Mckeown  18:34

Yeah, there’s over the years the reinsurance pricing has become part of how insurance companies manage that risk and manage their own pricing there’s there are as you know, in the United States every state has their has an insurance commissioner that that protects consumers and thinks about you know, the regulatory framework for those insurance companies but with so having taken care of that aspect of the business insurance companies then think about how you know the pricing of the risk and including the reinsurance price gets passed on to consumers in some in some places it’s too burdensome, honestly and states step in. You have states with state mechanisms like Florida, and other states have wind pools that are incorporated endorsed and support sponsored by the states to but also in most cases to encourage private capital deployment to the extent that we can find that balance. Sometimes there’s not enough price to pass on it, they are not insurable. But in those cases, the state steps in but generally speaking, again, insurance business strives to rationalize the pricing for the risk and find product that consumers can buy.


Jeff Malec  19:55

And then who are the investors so family offices, pensions and diamonds Big institutional investors were talking.


Chris Mckeown  20:02

Yeah, I mean, you think about so if you wanted to invest in insurance companies, you have a few choices, right? You could be a large private equity firm with a long runway of watching a valuation grow, or you could buy. A lot of reinsurance companies are publicly traded, you can buy the public equity to, that that gives you that’s, that’s another equity, right, that you’re purchasing or that so it’s a long term private equity play, to access the actual risk. The investors, as you mentioned, have created and the business has created what we call iOS insurance linked securities, which is a broad term and securities you need to put in quotes because, well, some of it is securitized, that is cat bonds, which are 144 A securities, a lot of it is not that just private transactions that are there’s crafted as securities, but they’re but they’re not necessarily liquid securities, but the idea is that you as an investor, whether you’re a pension fund a sovereign wealth fund, family office, you know, large asset aggregator can invest specifically in the insurance risk, bypass the market risk bypass the execution risk, the management risk, and really sort of laser in focus to say I want I want to be exposed to Florida windstorm or Louisiana windstorm. And I will take the premium that you collect as a reinsurer I’ll take a share of that premium and provide you capital to you know, to participate in that risk specifically.


Jeff Malec  21:31

Right? Yeah, like nobody wakes up and say I want to be exposed to Texas wind, right? So they’re  having, they’re saying, Oh, I love this constant flow of income. And I know that there’s this risk on the other side of it, right?


Chris Mckeown  21:45

But then if I’m sorry, go ahead. Yeah, yeah, go ahead. The benefit to investors is really on the portfolio. It’s directionally non correlating risk it in when you think about them, the classic case we bring up is 2008 2008, with everything going on. And there were losses, by the way, in the insurance business that we had Hurricane Ike in 2008, which was a fairly large hurricane. But it wasn’t it, it worked in the sense that it wasn’t, since it wasn’t correlated, the insurance sector. And then the iOS business did very well in 2008. So it’s a protection, I think of it as an investment, portfolio protection. And it does create yield, it does create positive premium as well, which is, which is a benefit for the risk that you’re taking. But as a as a proportion, or as a component piece, excuse me of your investment portfolio. It’s quite compelling because it is, it is directionally non correlating to equities, to debt to other alternatives.


Jeff Malec  22:40

And it’s, it’s super interesting to me, because it’s essentially what we do with guys all the time selling options, right, you’re selling these far out of the money very unlikely to happen options, collecting a premium able to reinvest that premium into, like you say, in 2008, would have been great to be getting coupons in the trade to put back into the market at the lows. So I can see the desire for the institutional investors. Yeah, it’s just how do you guys view that? If it’s a short option? How do you view the probability of it having to pay out? How do the investors view that probability of it having a payout?


Chris Mckeown  23:17

Yeah, that’s so reinsurance. Generally, when you think about collecting all the volatility from the balance sheets of the large insurance companies around the country and around the world, you know that that creates a very asymmetric business, it’s not and so it doesn’t lend itself to sort of normal metrics for a lot of investors, it’s  a bit of a head scratcher. To understand because you’re  collecting a number of tails, you’re diversifying, hopefully the those tails, but they are all, you know, so it’s a right sided outcome, so many, many years, eight, nine years out of 10, you’re collecting the premium, the one year out of 10. And what makes sense to challenging is that the wonder that one and a half to two years out of 10, whatever it is, you have a loss and or you think you have a loss. So part of the liquidity premium that you get is because or illiquidity premium if that’s the way you’ve referred to it is because you could have a year where you don’t die aren’t sure that the contracts gonna pay, but you your collateral is still held against the risk until it develops fully and is known. And so you can take the losses this year hurricane Ida that occurred earlier this year. A lot of complexities to that event, that will create a long time frame in which we will finally understand the full economic impact of that and of that event, so you lose it because it’s illiquid that money stays in the contract until the finality of that contract of the of the underlying reinsurance contract which could take up to three years.




Jeff Malec  24:55

And so they’d sort out of people’s claims and what the damage was actually caused by That’s really yeah i was gonna save that for later when we talk cat bonds but I’ll dive into it now like to me you out and I read the what’s the website the Burmese am whatever like they’re saying reinsurers could lose 20 billion on hurricane Ida right you’re reading those articles and then it turns out to be much less usually. And it seems like there’s this thing of like oh the losses weren’t from the hurricane was from a flood that’s different so how does that work? It seems a little like parlor game me but I mean I guess it’s all just contracts are contracts they delineate what gets paid out and why


Chris Mckeown  25:34

they do although they are there is a there’s a there’s still a little bit of flexibility in how the contract wordings can work. And we, you know, we’re learning with every event. But generally, you know, it insurance companies expect to pay the claims and have their reinsurers pay, you know, Perry pursue as to how those claims are paid. And you know, if it’s not clear in the contract wording exactly what is covered what isn’t, you know, you can have some issues but a hurricane is a good example, Jeff, where you’ve got, you’ve got wind damage, and then you’ve got flood damage, they happen to the flood damages is generally you know, sort of seen as the Northeast is almost two different events in a way so the Northeast was a flooding event. And then in Louisiana, it was more of a wind event, although there was there was, you know, a lot of rain that was that was dumped in the state of Louisiana on a very already saturated unfortunately saturated area of the country that will exacerbate the actual settlement of those claims. So the estimates come out, you’re right, the estimates come out from these models of the industry uses and industry sources, centralized industry sources that do a survey of insurance companies and say, you know that this is what we think it might it might be. But until the claims the claims professionals get on the ground and start settling claims and looking at the looking at the property and saying that’s water damage, if it’s a if it’s a homeowner’s coverage and flood, that typically goes into the National Flood Insurance Program. And the insurance, the homeowners insurance company doesn’t pay that. So you have to really, you have to go through it kind of claim by claim until you get a clear sense of where the where the loss sort of manifests itself, whether it’s on the insurance policy, whether it’s in the flood program run by the federal government. And that just takes a while to sort out it’s particularly exacerbated this year. Because with COVID, as everything else, things are slower, and the slower it takes, the longer it takes for you to settle the claim, it’s generally speaking, it becomes more costly. You think about it, you know, if you can get in and assess it quickly and agree with the homeowner or the business owner that the what the claim should be paid. But as time goes on, things tend to deteriorate and then a loss can escalate. So the amount of time is a problem because the COVID because of lack of labor supply chain disruption, infrastructure issues, they’re all sorts of things that will create a more complex claim outcome in and that’s  what that’s why it’s going to take some time to sort out.


Jeff Malec  28:13

And then tomorrow on reinsurance, why Bermuda? why are all these things in Bermuda? Go ahead. So why Bermuda?




Chris Mckeown  28:21

That’s okay. But I mean, Bermuda became the sort of the jurisdiction of choice. Really, I mean, not all reinsurance is done in Bermuda, by the way. I guess you’d go back, if you’d wanted to go all the way back 300 years plus, reinsurance started at Lloyds of London. Lloyd’s of London still plays a very prominent role, as do a number of large reinsurance companies in Europe, like Munich Re Swiss three. But Bermuda became a jurisdiction of choice really in 1992, after Hurricane Andrew, where it was there, there is a breach of monetary authority is there with a with a jurisdiction framework, which is very, very strong. It’s part of the UK, from a from a court and legal standpoint. And so it was seen as a place that has, it’s closer to the United States, it is a low tax environment. So the idea was to write volatile lines of business and in and attract talent to Bermuda, that has just created a market in and of itself. So the class of 92 was six or seven companies that started there was a class of 2001 as we call as referred to it, not as many companies but larger and more successful companies over time. And then it’s there’s a marketplace there with people with solid, solid regulatory framework. Now it’s self fulfilling, self fulfilling exactly yeah. And hence, these are these are generally the model was private equity built, drive to a certain liquidation event and move on along the way. It has also become a place for asset managers who are dedicated to insurance link Security. So they also have with the Bermuda Stock Exchange and the BMA have, you know, have found a home there to participate in the marketplace alongside the traditional balance sheets?


Jeff Malec  30:13

And then what I don’t know if you know, but like, third point, greenlight had set up, they’re like, reinsurance companies that they’re gonna invest back into their hedge funds, is that still a game being played? Or is


Chris Mckeown  30:24

it is it is, but it’s sort of, I think less so of a model, honestly, going forward. But the idea is that you can write longer tail lines of going back to my point there are there, there are lines of insurance about sort of how losses develop over time, I just use the property cat example where it’s going to take months and months to understand what arcane Ida but there are, there are, there are liabilities out there that sometimes take years and years to understand. And so those long tail lines mean, you can collect the premium for a number of years, invest in alternative strategies to get you extra yield on the investment portfolio. And the combination is, you know, is more powerful. I think, I, I’ve never worked for that type of a company because I like to focus on the risk on the on the liability side. And I think that if you get if you focus and you know, you’re getting paid for that risk, then it’s it’s a better outcome than trying to minimize that risk, but maximize the risk on the asset side. And so there are still companies out there pursuing that strategy. But it’s, it’s mostly it’s, it’s mostly now that when I think of a traditional, at least advantage, the balance sheet is very, very conservative, very boring. Assets all you know, high, high level of, sorry, you know, t bills and short term duration and very highly liquid. And that’s the majority of investment. assets that go against the insurance reinsurance business,


Jeff Malec  32:01

Well, you don’t want to get upside down, right? Like if they were in they were selling short, beta or not ADA, but a Ike in 2008. And their hedge fund was down 40%. They’ve got a cash problem.


Chris Mckeown  32:13

They got a cash problem. Yep. If you need to be someone, you know, you need to be liquid in the reinsurance business. I guess it’s because you don’t know when the events gonna happen. And then, you know, the contracts are due. So it’s, it’s, it’s hard to get that right, that balance, right. And so that’s, I think that you’ve said, it’s been proven by the folks who’ve done who have tried, and then continue to try, and we’ll see how it all plays out.


Jeff Malec  32:41

And so we mentioned cat bonds that short for catastrophe bonds. That’s hurricanes, what else is a cover all sorts of catastrophes? It seems like we have an ever increasing number of catastrophes in the world.


Chris Mckeown  32:53

Yeah, it does. Unfortunately, no, they’re fairly prescribed in in, they rely on third party objective view of what the risk is. And so the there are model vendor models out there that provide that that view of risk. And it’s really, in places like us hurricane us quake, some Japanese risk as well. Both quake and typhoon and in certain cases, Europe, it’s a it’s a more highly concentrated portfolio of risk where there’s modeling available, and there’s third party validation. And the pricing is such that it you know, it’s attractive to cap on investors. So we advantage, we’ve already issued a cap on for instance, on a on a industry basis, so you buy it on a on a derivative basis, that, you know, those investors are keen to find that yield, but it’s very, very limited in terms of what coverages it affords. So, the one structural issue overall with the business is that when we talk about insurance companies, you mentioned your insurance company, USA think of as Yes, it’s the best rated company, one of the best rated companies in the country. It’s got it’s got a huge balance sheet, you add up all those insurance balance sheets, I lost track, but somewhere between two and $3 trillion. The global reinsurance marketplace is capitalized to about 660 billion. And then that secondary market I talked about the retro market is about 100 billion. And the cat bond market is just shy of 100 billion in notional. Sorry, when I talked about the collateralized reinsurance, the iOS space is about 100 billion and a portion of that as cap bonds. So what you have is sort of an upside down market really in terms of access to capital, as pension funds and the general investment community is much larger than then what that that shape of that, that that that that structure I just referred to. So we need to find ways to bring more investment investors in to grow the business and build A more sustainable, you know, structure that’s not sort of upside down in terms of a trillion dollars buying from a $660 billion to it, you know, to a $200 million marketplace. But the cap bonds in the cap bonds are just a portion of that 100 billion at, up until now at least,


Jeff Malec  35:17

we’ll have that hey, pensions instead of selling uncapped variant swaps on the S&P buy some cat bonds. Sure.


Chris Mckeown  35:25

Yeah, it’s it, there’s a learning curve involved. But you know, we were doing all of us are doing our best to try to explain and demystify the business and provide quantitative output that, you know, is comfortable for investors to digest.


Jeff Malec  35:41

So, speaking of the quantitative output in the modeling, so, right on, I don’t know if you can talk specifics of that bond you mentioned or just in general, like, what are the probabilities that get assigned? And what sort of yield are we talking about? And what does all that look like?


Chris Mckeown  35:55

Yeah, I mean, generally speaking, the cap on market participants are even further out the curve than then. So it’s at the tail end of the reinsurance, so they’re really picking up what we call expected loss or in, in our jargon of, you know, a very small, small percentage outcome. So the coupon on that tends to be single digit, middle mid to mid to low to mid to upper single digit coupon, it’s a it’s a floating rate instrument. So you put your post your collateral, it makes what it does in terms of the underlying asset, and then you get the get the coupon above. And so but that’s, that’s where it’s been oriented. And it’s, as I say, it’s been it’s been very singular in terms of the type of peril that it’s the cap on, investors are willing to take. And it’s certainly out the curve, it’s at the tail end. So you’re, you’re really it’s beyond where the reinsurance marketplace is going to provide efficient capital to its customers.


Jeff Malec  37:01

And you mentioned the retro sessional trades, like can I go long these two if someone’s buying it? Can I go long the outcome? Right, I think most of our a lot of the people we have on the pod and some of our investors they want to profit on a left tail event, right? Like here, we’re selling short the left tail event. So yeah, I’m just my How can I buy it? Yeah,


Chris Mckeown  37:24

you can buy it there are their derivative instruments called aisle W’s with your industry last warranties. So you can you can you can buy those in the form that says, You know, I think the likelihood of a category five into Miami is much higher than the industry has priced it out or ism is model that out Excuse me. So you know, I’d be willing to buy that risk. It’s available. It’s a very small market, it’s a single billions of dollars. And it’s a you’d have to be very patient, right? Because the night the 1926 hurricane target, Miami was a 1926. We all it seems like everything’s happening about every 100 years, we have a pandemic, it’s 100 years. So maybe we’re doing in 2026 for the Miami hurricane. But that’s you’d have to be patient on that on that trade.


Jeff Malec  38:11

And what would you be spending? Who knows? 1% a year some, like not even that much?


Chris Mckeown  38:16

No, I know, you’d be spending more than that. It’d be


Jeff Malec  38:20

alright. Yeah, it doesn’t make sense on any normal realistic timeframe. So we mentioned it some but how does climate change plan dollars? Right? That’s kind of an unknown. And it’s, it’s fundamental right?




Chris Mckeown  38:36

We, there was a article in new york times this summer, we were all used to looking at the maps, unfortunately, the pandemic maps but this map showed that states it was almost sort of cleaved into the western part of the United States is the driest I think it’s ever been, and the eastern part of United States is wetter than it’s ever been. So you’ve got global time climatology, and then you’ve got localized conditions that manifest themselves in ways that are very, that are very into the what your long term models are telling you, hurricane model, look at empirical evidence going back to, you know, 100 years plus, run and simulate, you know, a set of outcomes for you. But if it hasn’t taken into account, those conditional probabilities that are shifting seemingly on an annual basis, you’re not more, more likely to quit more quickly, excuse me, then you could you could find yourself caught out insurance and reinsurance contracts or annual contracts for the most part. So when you buy them, and because of there’s no liquidity really, you own them for that year, it’s hard to sort of hedge against what you then decide is a conditional issue that you didn’t know, wasn’t necessarily contemplated in the model. So it’s, it’s a challenge for us to understand the local this year. For instance, when you think of a Atlantic hurricane, you often think of, you know, seeing a form of the Sahara, coming off the Sahara coming across the Atlantic and sort of winding up and maybe it goes into the Gulf and maybe it goes up the East Coast. This year, we saw a lot of what I call pop and drop hurricanes, which all of a sudden, there’s a hurricane in the Gulf. Yeah. And accelerates over the bat with a warm blob. That’s the water that’s in the Gulf, and then it’s full of moisture. So it drops, you know, four or five, six inches biblical types of rainfall. And there’s no, it’s a different type of Hurricane honestly, than the Cape Verdean forming hurricane. So, you know, does that is that mean? Is that part of the new climatology that we have to deal with? And thinking about those types of events? And how do we adapt to them as an industry, all that is, you know, it needs to be discussed, and we just, we just hired a meteorologist to help us understand that and to see what you know what type of product innovation we need to think about and how we, how we deploy capital, and in a more meaningfully, profitable, sustainable way,


Jeff Malec  40:46

it seems to me like, at best, it’s going to make it more volatile, right? Like your model is going to be anyone’s model is going to be wrong more often, because of the changes coming.


Chris Mckeown  40:59

Which will make a market the market, the market, falling into a little bit of complacency around vendors, providing that that analytical framework, and everyone using the same, the same models, to tell them what their view of risk is. advantage, we have to have it up there on the fence, we’re gonna view risk differently, because of just what you just mentioned, it’s going to it’s going to create volatility, which doesn’t mean that there is an opportunity to deploy capital in a smart way.


Jeff Malec  41:27

And so who, whose models is the industry using they each have their own model each of these ranchers are it’s kind of a general stochastic approach.




Chris Mckeown  41:35

It is Yeah, they’re principally two, three model providers in RMS AR core logic now that provide the underpinning for a lot of a lot of the industry’s view of risk. The rating agencies rely on those models, cat bond investors rely on those models. So you know, they’re important, and we use them as well. But it’s like any model, you need to sort of to kick it around, particularly given what I just said, and how adaptable are they not, it’s not just climatology, either. They have embedded in them and certain we mentioned it earlier, but certain expectations in terms of how an average claim in a certain type of windstorm in the state of Louisiana State of Florida, that, you know, that is also on the table for the reasons I mentioned earlier infrastructure, cost of goods, cost of labor, and governmental action, right. governmental oversight and authority is it can also affect that that outcome. Have you think about consumer protection and governments that are you know, they’re thinking about that. So all those things need to be added to the model? And then we haven’t even gotten into there be a whole nother podcast. But is the data that the model is based on? Is that is that accurate? Is that correct? To our ecosystem in the insurance businesses? We allow the insurance companies to collect the data provided to the brokers, the brokers to provide to reinsurers then is there a way to objectively validate that data to begin with insurance companies who are worried about that or are exploring better ways to access data and better tools obviously as in this day and age to assess what your how accurate the data is? Is it actually as though is the data is the asset that you’re insuring exactly where you think it is? Is it built the way you thought it was? Is that the roof that you think and just real time data right as things degrade over time you’re and so have you taken all that into account and I think the data will get better and our and our ability to assess it obviously has to improve as well that’s all the whole the whole game needs to be you know continually


Jeff Malec  43:35

data is like 2 million people’s homes in Houston their individual roofs and whatnot right so that’s  a big nut to crack. And so the insurance the brokers are passing that on to the insurance,


Chris Mckeown  43:49

insurance companies collect it right where their agents collect it, you think about your policy may not have even been inspected, it may have been done from an office saying I kind of know that the type of adjustment


Jeff Malec  44:02

actually remember this drop down of like, what’s your roof of shingle river? I can’t remember the choices but yeah.


Chris Mckeown  44:10

So you know, you fill that out diligently and accurately? You know, does that happen in every case? And then does it are the assumptions made against whatever that you know that information is that data collected in the appropriate way and thought about from the insurance company standpoint there everybody’s striving to obviously understand their portfolio. You have to remember it’s only 30 years it’s been 3030 years ago insurance company didn’t even collect the underlying data. Yeah, they just in Hurricane Andrew, that was a surprise in 1992. It wasn’t that long ago. I know it’s not old but insurance companies didn’t actually know what their accounting policies were in any one county or anyone’s zip code, what the what the characteristics of the of their portfolio were in any sort of fine details. It was the models that I just mentioned who created the needs And the desire and the framework, I should say, to collect the data to then start to analyze it. So we’re 30 years in, technology is getting better and better providing us not, and then not to get into sort of machine learning and figure out even, you know, better ways faster ways to understand the data, we need to do a better job at staying on top of the data as it evolves.


Jeff Malec  45:23

Now, we love machine learning here. So Vantage, you guys are using machine that would you call machine learning or AI or a combo of the two,


Chris Mckeown  45:30

it’s becoming, it’s becoming more and more prevalent, where we’re, we are just starting out. So we, you know, we’re, we’ve got the storefront open, we’ve had a great start to our business on the reinsurance side insurance takes a little longer, because you got 50 states 50 jurisdictions, 50 licenses, you need to, you know, bring through the process. And so that’s gonna, that’s taken a little longer, but we’re very happy to have that. The front of the store open, so to speak. And in the back, we’re certainly looking at all those technological developments and data, we’ve hired a large team of data scientists, data engineers to, to start understanding the data that we’re collecting, and then and then provide output, whether it’s human or machine driven, to give us better insights into risk. Yes.


Jeff Malec  46:16

And do you feel like that’ll become a winner take all for the insurance industry, right? Like, the more the bigger you are, the more data analytics you can do. And the more data you have, and the more you can spread out your risk? And it seems like,


Chris Mckeown  46:27

Yeah, I think so. And so you’d think the large carriers would have an advantage and you certainly you read about the war chests or the I guess you’d say the amount of money that they’re spending on data and data mining, you’d hope so. But it’s sometimes the benefit goes to the smaller, nimble or player who can, you know, find that insight quicker and take advantage of it. And so that’s certainly what, you know, advantages hoping. And then I’d say there’s a lot of risk that is commoditized, double or homogeneous risks that you can you can put into and understand is there’s a lot of risk on the insurance side. We’re writing DNO, you know, so directors and officers liability and errors and omissions liability. That’s not as susceptible to just the machine learning based companies change and the environment changes whether it’s the threat landscape from cyber or, you know, societal norms change, does will ESG have an impact on how companies operate and how and how there’ll be held accountable, right for their actions. And so things that things like that are harder to sort of, say that you can grab data that’s available and crunch it, and those more idiosyncratic risks, but certainly, certainly a large portion of the insurance business can be can be seen through better sort of better data can be provided to give us better insights. Yes.




Jeff Malec  47:47

And it seemed like to me like one huge cat bond fund that rolls exposures, and doesn’t have the an end date, right, and has a huge, right, if I just have a cat bond on Grand Isle, Louisiana, that might be pretty risky. And it rolls over here, if I have the whole, you know, Gulf Coast plus Florida plus Japan. Now I have like a diversified portfolio and I right, I’d rather sell options on a diversified portfolio of stocks than just


Chris Mckeown  48:14

Netflix. Yes. Yep. So that and that’s, that’s the challenge for the cap on market. Those investors want it to grow, they want it to expand. And it’s just that the product isn’t as adaptable in a lot of places for a lot of perils. So they’ve, they’ve got into the private collateralized reinsurance space to collect that diversification as you enter, you have to sell more option. And it’s less liquid, it’s less, it’s not it’s not a you know, it’s not a 144 a security so that limits some of their appetite but it’s, it’s, it’s an it’s an arena that needs to grow in our business, that $660 billion is great, you know, we’re all proud of how much capital we have to put to, to put to use for society. But it’s according to people like Swiss Re and others, it’s, you know, it’s  probably a third to a fourth of what it would it could be what it should be as a global enterprise. So it still needs to grow. And we need to rely on these investors to help propel us to think about how we can grow the marketplace.


Jeff Malec  49:16

And it’s always weird to me when I in the past explain like, oh, reinsurance insurance, the insurance and people are like, well, who insures the reinsurers? Right, it seems like there’s a missing leg at the end. But that’s probably why it’s only 600 billion. There’s only so much capital that’s willing to reinsure the reinsurance, right. So you have to build that capital base


Chris Mckeown  49:37

out of it, because we’re all we’re all we’re all being judged more or less on this by the same yardstick, we all run this, a very similar capital model. So it’s, it provides for less, you know, sort of less growth of the marketplace. Whether you’re running an S&P model or an invest capital model. It’s it becomes you know, how About a compressed arena of where things get traded and you really need to think about longer term outcomes and different in different capital structures as well that might be more flexible over the over the over time and provide more you know a better return across the whole curve


Jeff Malec  50:17

if we touch on this confining capital model


Chris Mckeown  50:21

now well it just the I just touched on it a little bit i mean it’s an interesting business that a lot of people as you say have heard of, but then don’t really know where they used to joke about like what’s the Is there a secret handshake or something because that’s a it’s a fairly tight ecosystem it’s well it’s been around for a long time but it’s your control you have to have a rating you have to be able to provide your long term plan to you know, outside credit rating agency and pass muster it’s fairly centralized in terms of its distribution model at least the reinsurance market is predominantly the production the production pipeline is through the large brokers a on Marsh you know Willis it’s a very few producers of that business and then you then you run these models that you know, most of the competition run so that creates a sort of this a bit of a confining view and a closed ecosystem that we’re not here to disrupt anything we’re you know, we’re happy to be dealing with our distributors and working with the analytics that we have. But I think as an industry we all have to think about whether there’s some limitations to that and whether it does it does not encourage you know, further investment further capital to come in if you know to provide a better a better return across the curve as I say so those are just some challenges we have will always have as an industry we’re all trying to solve them the producers are trying to solve them the you know, the rating agencies are aware of it and thinking about stress, testing your capital, and keeping you know, sort of making sure that you’re you understand your the responsibility for your balance sheet and the risk that you’re taking, but you know, it just it always helped out third, literally third party capital come in and push and pull and poke holes at the and find ways to expand our business and that that is a valuable role that a lot of these third party investors have played over the years and hopefully continue to play.


Jeff Malec  52:23

It’s like you need a Got Milk campaign for right it seems like it’s always in the news for the wrong reasons, right?


Chris Mckeown  52:31

Yeah, nobody likes me. Nobody really likes it. It’s always something to complain about, like the weather or the airlines. But you know, we reinsurance


Jeff Malec  52:39

especially like all these rich hedge fund guys in Bermuda, like are trying to do this or that you’re like, no, we’re actually trying to provide a valuable service to the planet here. Finish out with some of your favorites. Favorite Bermuda spider custom


Chris Mckeown  53:02

favorite Bermuda spot or custom? Well, I’d say you know, if you’re closing a deal, a dark and stormy on any bar along Front Street is a nice way to celebrate. And if you don’t have to wear Bermuda shorts and high socks either you can.


Jeff Malec  53:22

Gosling’s black seal rum, black seal


Chris Mckeown  53:24

rum and Barrett’s ginger beer is the is the classic.


Jeff Malec  53:29

I love it. I’m favorite investing book.


Chris Mckeown  53:34

Favorite investing book. I’ve just gotten halfway through noise, which I found intriguing, but I’ve been I’ve been sort of preoccupied with some business stuff. So I haven’t gotten back to that. And then the other one that was interesting to me is a book called resiliency, which was written a number of years ago, I can’t remember by an MIT professor, not I guess not investment books, but more business books. And those are those are two that I’ve really enjoyed the resiliency book in particular.


Jeff Malec  54:05

I feel like I’ve read that but I can’t remember the author here either. I’m looking around my shoulders. Favorite Boston restaurant. You would North End guy or lobster or one?


Chris Mckeown  54:18

Yeah, no there’s a there’s a restaurant called SRV and Columbus, Columbus Avenue. That’s nice. It’s Italian, but it’s on the north end. But it’s a great vibe.


Jeff Malec  54:31

And you don’t really have the Boston accent So when did you grow up?


Chris Mckeown  54:34

I did Yeah, I know. I’m sorry about that. So all your listeners but I somehow have waited on my parents from New York City and I didn’t I just never just never had it for whatever reason, but I did grew up here.


Jeff Malec  54:47

I got a good one. If you want to hear the you can’t talk that guy here that parkin’s for the fish market only.


Chris Mckeown  54:57

throwing a wicked pista and you’d be all set.


Jeff Malec  55:00

My favorite you went to Syracuse right you’re upstate New York guy like myself so favorite Syracuse athlete


Chris Mckeown  55:08

Oh favorite Syracuse athlete


Jeff Malec  55:14

you know I regret


Chris Mckeown  55:15

I got there right after the Louis and buoy show but when I was touring, I said it goes way back, Louis or and yeah, it was first named Mr. Bouie. And, and then I liked them playing with them was a guy named Marty head. Who was favorite fan favorite because he was not at all not a tall guy. And he was bald. head so he was he wasn’t the most famous Syracuse athlete there’s tons of them, and they were all they were all


Jeff Malec  55:47

Awesome and those were all basketball I’m assuming


Chris Mckeown  55:51

Yeah, basketball was more of a thing when I was there football was always a little we had you know john Morris and Mercker Morrison you know we always had a few pretty cool players but the team was didn’t really perform in those years and lacrosse has always been good the gates brothers and the Yeah, they’re pretty stunning athletes as well.


Jeff Malec  56:13

Yeah, I went to actually gates brothers lacrosse game in the dome was one of the coolest things I’ve ever


Chris Mckeown  56:18

done. Yeah, there you go. That’s pretty special.


Jeff Malec  56:21

Yeah, I tell that that was my answer. I was hoping you’re gonna bring up the gates and then finally, but right I don’t know what they’re doing Didn’t they start a league or something?


Chris Mckeown  56:31

They started leaving Canada they are Yeah, I think so. We’re Yeah, that’s the New York Yeah.


Jeff Malec  56:36

And then finally favorite Star Wars character.


Chris Mckeown  56:41

Oh boy. Oh boy. See I this confessed I guess my brother should be honest. My father and my brother are both engineers math guys. Really into that into that so


Jeff Malec  56:57

you can you can look on my poster behind me. Yeah.


Chris Mckeown  57:01

I like that right? Like I like the ray. I like Ray the character There you go.


Jeff Malec  57:04

Yeah, she’s pretty close. So what I we’re gonna have to do my Star Wars fans guide to investing so we list all these asset classes and what Star Wars character they would be, but I don’t have reinsurance reinsurance or cat bonds in there. So yeah, we’re gonna add those to the poster.


Chris Mckeown  57:21

Well Rey starts with RE already. Is Rey already taken?


Jeff Malec  57:24

Shes not that was made pre Rey. Done, done and done. Alright, Chris, this has been fun. Thanks so much. Thank you, Jeff. Enjoy your weekend and next time you’re in Chicago, or I’m in Boston, we’ll we’ll grab a beer or something.


Chris Mckeown  57:43

That sounds great. Jeff, thanks for your time.


Jeff Malec  57:45

Thank you. All right.

The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

Limitations on RCM Quintile + Star Rankings

The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.

See the full terms of use and risk disclaimer here.