ILS diversification offers real value to investors: Anger, GC Securities

The diversification benefits of the insurance-linked securities (ILS) space offer real value to the asset classes growing investor base, says GC Securities’ Cory Anger.

Speaking to A.M. BestTV at the Artemis ILS NYC 2017 conference held recently in midtown Manhattan, U.S., Cory Anger, Managing Director and Head of ILS Structuring at GC Securities, highlighted the sector’s diversification benefits, favourable ILS pricing environment and continued investor appetite.

Diversification is one of the key attractions to the ILS space for the range and expanding base of institutional investors that allocate to the space, a notion highlighted by Anger when speaking with A.M. BestTV.

“Many of these investors are in this space for diversification purposes, it offers real value, it’s a growing asset class, it’s an asset class that doesn’t involve leverage, and that’s exciting for them,” said Anger.

The marketplace has grown consistently since its establishment and the diversification benefits offered remains a key part of investors continued attractiveness to the space.

“What we’ve seen since August of last year is a renewed favourable pricing environment from the ILS space, relative to the traditional markets. We think that’s going to benefit 2017 and we’re excited when the activity begins,” Anger continued.

With rates in the global insurance and reinsurance market remaining under substantial pressure and continuing decline at the recent renewal period, albeit it at a slower pace then previously witnessed, ILS pricing also felt the strain of benign loss activity, high competition and ample capacity.

But as noted by Anger, when compared with traditional markets the ILS pricing environment has been favourable in recent months, and combined with the asset classes diversification and low-correlation benefits, investor appetite and sponsor appetite suggests a healthy pipeline of ILS issuance throughout 2017.

“We see the pipeline of transactions for the first half of 2017 as being robust and that’s good in light of the fact that when we look at specifically the 144A cat bond market, we’ve had almost 10% of the cat bond market mature in January, and then we have another 20% that will mature in the second quarter – so it’s very important that we see consistent deal flow come into that type of capital, and we’re definitely seeing transaction activity occur there,” continued Anger.

Data from the Artemis Deal Directory shows that roughly $5.9 billion of outstanding catastrophe bonds, which include 144A and private transactions, are scheduled to mature in the remainder of the year, so it’s certainly promising to hear that Anger expects a robust pipeline of new deals.

“They are putting very small amounts of their assets under management into this space, and so if we do have a severity loss that happens I think that they’re still going to be very committed to the marketplace,” concluded Anger.

With such a high volume of catastrophe bond issuance scheduled to mature in the coming months it will be very interesting to see if supply matches investor demand and the cat bond space manages to achieve outright growth, once again.

But it’s worth remembering that collateralised reinsurance continues to expand and is now the largest sub-sector of the ILS space, after catastrophe bonds and, as seen last year, growth here helped to offset a decline in cat bond issuance, ensuring the overall ILS market continued to claim an increasingly larger slice of the total, dedicated reinsurance market pie.

View the full video from the event below: