What investors really want from insurance-linked securities (ILS) allocations

Episode 27,   Nov 14, 2020, 04:04 PM

This episode features a panel discussion featuring three leading institutional investors that allocate to insurance-linked securities (ILS) and reinsurance linked investments.

This episode features a panel discussion featuring three leading institutional investors that allocate to insurance-linked securities (ILS) and reinsurance linked investments. 

The discussion was held at our recent ILS Asia 2020 conference and the experienced ILS investors explained what they really look for from their allocations to the ILS asset class, as well as some of the challenges they face and frustrations they have. 

The investors noted that the experience of catastrophe losses, loss creep and trapped ILS collateral of the last few years has resulted in lessons being learned in the ILS industry. 

“This period was clearly a challenge for the whole market,” said Eveline Takken-Somers, Senior Director, Lead Portfolio Manager – Insurance Portfolio, PGGM. 

“We spent quite some time educating our clients so the losses itself did not raise many questions.” 

Panellist Bernard van der Stichele, Portfolio Manager (ILS), Fixed Income & Derivatives Healthcare of Ontario Pension Plan (HOOPP), explained that the recent loss experience was new for most ILS market participants. 

“That sequence of events was really new for many people in the industry, not just investors but fund managers included. And, so, it was interesting to observe how incumbent markets dealt with losses, loss estimates and then communicated that to investors. I think everybody learned something out of those couple of years.” 

Craig Dandurand, Head of Debt at the Future Fund of Australia, said it’s a matter of being prepared for the eventualities of losses, creep and trapped collateral when entering the ILS space. 

“Anytime you go into an asset class that has an unclear potential outcome, you have to be prepared for that volatility of realisation of gains or losses, much less the volatility of the actual cash flows themselves, the timing comes into play. 

“And, so, I think the surprises were more in terms of the range of outcomes, the different range of events, the extent to which at least during the first series of losses the relative alacrity with which capital was redeployed, or made available to be redeploy, that was a bit dispiriting. 

“So, in a sense it feels like we could be at the start of a bit of a relief here in the sense that my other day job, on the credit side, you see credit spreads having tightened very, very quickly after the Covid-19 related events back in February, March and April. Here you haven’t quite seen that snap back this time around. 

“We are still learning and I’m sure we’ll be learning long into the future.”