Reinsurance allocation primed for growth at Future Fund

by Artemis on October 28, 2016

In its 2015-2016 annual report, Australian sovereign wealth investment fund, the Future Fund, confirmed that it’s added a second manager to its reinsurance portfolio, which the fund says will facilitate potential expansion of this exposure in the future.

The Future Fund utilises reinsurance as part of its alternative risk premia strategy, and following its $100 million allocation to Elementum in 2015, the addition of insurance and reinsurance-linked investment manager Kiskadee was announced earlier this year.

The Future Fund notes that it added three programmes to its strategy during the year, which includes a second access point within its reinsurance strategy, being Kiskadee, “where we can earn returns by providing capital for potential property losses primarily suffered in natural catastrophes such as hurricanes and earthquakes.”

“Returns to this activity should be uncorrelated to capital markets, and a second reinsurance access point gives the Fund the potential to scale this exposure in the future,” said the Future Fund.

As at June 30th 2016 the Future Fund’s value stood at A$122.79 billion ($93.48bn), of which roughly 10% (A$1.63bn, or $1.24bn) comes from its alternative risk premia strategy, which includes its reinsurance and insurance-linked securities (ILS) investments.

The Fund serves as a sovereign wealth fund designed to provide the Australian government with financial support and assistance via the offering of superannuation liabilities, and as at the end of March 2016 the Fund was capitalised to the tune of A$117.3 billion ($89.3bn), so there has been further growth.

The allocation to both Elementum and Kiskadee highlights the Fund’s comfort in the ILS and reinsurance space, and with the Fund noting that this second allocation facilitates expansion in this sector in the future, it’s possible that the Fund will increase its reinsurance and ILS allocations further in 2016 and beyond.

The addition of Kiskadee roughly a year after its Elementum allocation shows that the Future Fund sees value in the diversification and uncorrelated benefits the ILS sector can bring to its overall investment portfolio, and it will be interesting to see how much the firm allocates to the space in the future.

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