Dutch railway pension fund SPF sees catastrophe bonds as social investment

by Artemis on May 15, 2014

The Dutch pension fund for railway workers, Spoorwegpensioenfonds (SPF),which invests over €12.6 billion of assets on behalf of its clients, sees allocating a portion of its asset base to catastrophe bonds as an investment opportunity with social importance.

The SPF published an article on its reasons for liking an investment in reinsurance bonds, by which it means catastrophe bonds and perhaps other collateralized reinsurance structures with natural catastrophe exposure, on its website recently, noticed by pensions publisher IPE here.

The IPE piece says that SPF has not yet made an allocation to the catastrophe bond or reinsurance space, but from the article on the SPF website it is clear that the Dutch pension fund sees allocating to catastrophe risk linked investments as a socially responsible investment for the fund to make. The IPE spoke to a representative of the SPF who said the fund was waiting for the right moment from a risk and return point of view.

The SPF says that by investing in catastrophe bonds the Dutch pension fund is doing its bit to help to insure against the impact of natural disasters, supporting insurers or reinsurers who cannot afford to bear the ultimate risk of major catastrophes or natural disasters on their own.

The SPF notes that in return for bearing the risk it will receive a fee, but in the case of a major disaster event it may receive nothing back from its allocation to the reinsurance asset class. The pension fund says that in order to protect itself it does not invest too much in the asset class and aims to spread the risk across a variety of perils and regions or countries. The SPF also notes the low correlation with economic factors, which will clearly be a key draw for the pension fund.

Finally the SPF asks whether it is seeking to earn money from others misfortune? No it says. By investing in catastrophe bonds and reinsurance the SPF is helping insurers to pay claims in the event of major natural catastrophes, which helps the ultimate insureds to rebuild their lives post-catastrophe.

Hence the social purpose behind this investment, which the SPF says is aligned with its own investment vision.

The social investment angle is an interesting one, as before long it is expected that many pension funds will be mandated, either by customers or regulations, to allocate a portion of their assets to investments with a social purpose or which can be deemed to be social investments.

Providing contingent financing for natural catastrophe and disaster event recovery certainly serves a socially important purpose. Perhaps in future we could see more pension fund capital looking to provide financing to future risk transfer facilities for developing economies, where the social purpose of catastrophe risk transfer and financing is perhaps most evident.

However that develops, we could see more capital unlocked and become interested in the catastrophe bond or catastrophe reinsurance linked investment space as a result of an increasing focus on investments that are socially responsible in years to come.

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