NZ Superannuation Fund appoints Leadenhall to $275m insurance-linked mandate

London based insurance-linked securities and reinsurance-linked investment manager Leadenhall Capital Partners has secured a major new $275m investment mandate from the New Zealand Superannuation Fund. It’s not the NZ Superannuation Fund’s first allocation to insurance-linked securities but it is the largest allocation to catastrophe and reinsurance linked assets the Fund has made to date.

The NZ Superannuation Fund has appointed Leadenhall Capital Partners to manage a US$275m mandate which is focused on natural catastrophe reinsurance linked investments, including direct reinsurance linked assets as well as catastrophe bonds.

With this injection of new capital, alongside other inflows in recent months, Leadenhall Capital Partners has now boosted its assets under management to over $1.4 billion. Leadenhall’s growth continues to impress, having only cleared the $1 billion AuM mark back in March. The firms growth is testament to the increasing importance of and the new capital inflows that the wider ILS sector is seeing.

We wrote back in January that the NZ Superannuation Fund was looking to increase its allocation to various alternatives including catastrophe reinsurance  and catastrophe bonds. At the time the Fund’s General Manager of Investments Matt Whineray said that the NZ Superannuation could increase its exposure to catastrophe risk assets to as much as 2% of the fund.

Commenting on this new catastrophe risk mandate, Matt Whineray said that natural catastrophe reinsurance was attractive to the NZ Superannuation Fund, adding; “It provides good diversification for our portfolio and the premiums provide an attractive income stream.”

“As a long-term investor with certain cash flows and the ability to tolerate risk in the short-term, the Fund is well placed to take advantage of the attractive returns offered by assets linked to catastrophe reinsurance. This new mandate will further diversify our existing insurance investment portfolio across countries and risks”, Whineray commented.

The new mandate that Leadenhall will be managing for the NZ Superannuation Fund is a flexible one, according to the news release, it can vary in size up to a maximum of $275m, depending on the Fund’s view of the attractiveness of the ILS opportunity over time.

John Wells, Chairman of Leadenhall said; “ We are delighted to have been chosen to work with NZ Super as they increase their exposure to natural catastrophe risk. They are a prime example of the way sophisticated institutions are increasingly looking to invest in more than just CAT bonds for exposure to the nat cat linked asset class”

The NZ Superannuation Fund has explicitly chosen to exclude exposure to life insurance risks and any New Zealand natural catastrophe risks from the mandate.

The New Zealand Superannuation Fund, a fund for the state-run retirement benefit (pension) which is available to all working New Zealanders, made its first allocation to ILS in 2010 when it gave Elementum Advisors US$125m to invest in catastrophe bonds. We believe that it increased that allocation to as much as NZ$260m by January this year, when it said it wanted to increase the amount of capital it allocated to catastrophe reinsurance risk even further.

The new Leadenhall mandate amounts to approximately 1.5% of the NZ Superannuation Fund’s assets under management. Add that to the allocation that the Fund has with Elementum and it may total somewhere around 2.6% to 2.7% of its total assets invested in catastrophe and reinsurance risk.

The growing involvement of large pension funds, such as the NZ Superannuation, in the reinsurance sector shows that the capital inflows into ILS and reinsurance may have only just begun. The NZ Superannuation Fund is relatively experienced in terms of allocating to insurance-linked securities, having been investing in the space for three years, and allocates a meaningful percentage of its capital to the asset class.

As the profile of ILS and reinsurance linked investments continues to grow we expect to see many more pension funds allocating small percentages to the space. Many pension funds currently have no allocation to ILS or catastrophe risk at all, but as ILS and reinsurance becomes an increasingly viable asset class alternative for these large institutional sources of capital the inflows into reinsurance look set to continue.

News of large pension fund allocations, such as this, demonstrates that there is considerable room for growth in ILS and third-party reinsurance capital. If just a small percentage of the world’s largest pension funds all invested approximately 2.5% of their assets into catastrophe risk and reinsurance the ILS sector would grow in size significantly.