PGGM ILS portfolio grows to $4.6bn, despite 2017 catastrophes

by Artemis on January 25, 2018

The insurance and reinsurance-linked investment portfolio of Dutch pension fund manager PGGM grew in 2017, as the asset manager continued to increase allocations to the sector on behalf of the pension fund it manages an allocation for and despite the impacts of catastrophe losses.

In fact, it was the effect of differences in currency rates that hit the insurance and reinsurance-linked investment portfolio of PGGM harder than the 2017 catastrophe losses, which is testament to the diversification achieved by PGGM in its strategic approach to the asset class, while also highlighting that currency effects are difficult to avoid.

Dutch pension fund manager PGGM allocates capital and manages an ILS investment portfolio on behalf of one of the pensions it administers, the Dutch healthcare and social welfare sector’s PFZW pension.

By the end of 2017 the allocation to ILS and reinsurance made by PFZW reached approximately $4.6 billion, which reflects solid growth in the portfolio despite the effects of currencies and the 2017 disasters.

The PFZW ILS portfolio recorded a negative return of roughly -13% for 2017, on an unhedged basis, but the majority of that decline was due to currency effects, rather than catastrophe losses.

In fact, a PGGM spokesperson told Artemis that -11% of the decline was due to currency effects, while just -1.8% was due to catastrophes.

PGGM operates a centralised currency hedging overlay, hence the ILS segment is reported without the benefits of the currency hedges that the manager has in place to control dollar to local currency effects.

Still, 2017 was the first negative year for the PGGM ILS portfolio, which is unsurprising given the major catastrophe losses suffered by reinsurance markets worldwide.

Artemis spoke with Investment Director for Credit & Insurance-Linked Investments at PGGM, Eveline Takken-Somers, who said, “PGGM’s annualised return for ILS has been close to 7% since inception and the asset class has always delivered what we expected from it. The strategy performed within expectations on our end.”

The long-term performance of the asset class remains much more important than volatility in single years of return for many large ILS investors, so with PGGM being one of the largest pension investors in ILS it is no surprise that this metric is important to the manager.

PGGM expects to grow further into the ILS and reinsurance-linked asset class, as opportunities allow, having not yet reached its target allocation

“We still haven’t reached our growth target, it’s around 2% currently,” Takken-Somers said. “Our next step is 2.5%. If our board still likes the asset class we could even grow beyond that.”

PGGM allocates to a number of ILS investment fund managers and also invests directly through its own Leo Re Ltd. sidecar type vehicle.

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