LGT increases ILS assets to $3.9B, gains new pension fund mandates

Swiss located insurance-linked securities (ILS) and reinsurance-linked investment management firm LGT Insurance-Linked Strategies has increased its ILS assets under management to an impressive $3.9 billion by the mid-point of 2014.

The LGT ILS unit has seen impressive growth in 2014, having started the year with $2.743 billion of assets under management, which it subsequently grew to $3 billion by the end of the first-quarter of the year.

Now, the firm has upped its ILS assets under management again. This time with a significant jump of $900m, helped by the winning of two new mandates from European pension funds during the second-quarter, as well as the inclusion of insurance-linked assets held within the LGT group under the new combined company name of LGT Capital Partners Ltd.

The awarding of two new mandates from European pension funds to LGT, to be invested in ILS and reinsurance-linked assets, is a clear demonstration of the continued attraction to the ILS asset class despite any talk of falling spreads. It is encouraging for all in the sector to see that the large ILS asset managers, such as LGT, continue to be able to attract mandates in the current market environment.

The LGT ILS team has grown by one to help to expand its resources while growing its assets. One new employee has been added to the portfolio management area, bringing the LGT ILS team to 13 investment professionals in total.

The core LGT ILS team is also supported by a 20-strong team from LGT Capital Partners to help it to manage the sales, business development, IT, accounting and other functions. Effectively this brings the staff of the ILS business to the equivalent of 33 in total.

The LGT ILS team has been busy deploying both this new capital and its existing mandates at the mid-year reinsurance renewals, as well as participating in some of the second-quarter catastrophe bond issues.

As premium rates on collateralised reinsurance business have softened noticeably less than those for new catastrophe bond transactions, the LGT ILS team found a much more attractive premium environment in the reinsurance market than in cat bonds.

As a result, the LGT ILS team has further shifted its allocations within funds and portfolios to take advantage of the best available market pricing and conditions. The goal is to achieve an optimal risk return and diversification target for its investors, so by shifting the allocations more towards collateralised reinsurance LGT can offer investors the best possible market returns at the risk levels it targets.

Hilary Paul, partner and portfolio manager at LGT Insurance-Linked Strategies, commented; “Despite the exceptionally competitive environment, LGT has been very successful in deploying capital and in receiving participations on new reinsurance programmes at the June 1 and July 1 renewal date and have even exceeded our expectations with regards to capacity allocated. We can report that all of LGT’s insurance-linked funds and mandates are currently fully invested.”

LGT expects the summer months will be quiet in terms of cat bond issuance and of course there are no major reinsurance renewals until later this year. Any issuance activity is expected to be dependent on event activity with regards to hurricanes and typhoons.

However, non-U.S. wind transactions are always possible towards the end of the year and LGT believes recent ILS market conditions could dictate some diversification opportunities will come later this year.

Michael Stahel, partner and portfolio manager at LGT Insurance-Linked Strategies, said; “Assuming continued solid investor interest, we expect to see a good number of such ‘diversifier’ transactions towards the end of 2014, confirming the overall market size at record levels.”

The growth of the LGT ILS teams total insurance-linked assets under management to $3.9 billion takes our Insurance-Linked Securities Investment Managers & Funds Directory to $50.91 billion of combined ILS assets under management for the first time.