Greater transparency would increase efficiency, help ILS asset class: PGGM

Investment Director, Credit & Insurance-Linked Investments at PGGM, Eveline Takken-Somers, has underlined the importance of greater transparency in the insurance-linked securities (ILS) space, in a recent interview.

The transparency of the ILS asset class has often been debated by members of the risk transfer industry, with recent discussions suggesting the market is becoming less transparent as capital markets investor capital moves further towards private and collateralised reinsurance business.

Reduced transparency could result in higher barriers to entry and also weaken investor and sponsor appetite for the asset class, especially for first-time players, but Takken-Somers explained to Clear Path Analysis, in an interview for its latest report, some benefits of greater transparency in the space at a time when it is perhaps fading.

“There are reasons why we believe an increase in transparency helps the asset class,” said Takken-Somers, adding, “we also believe that transparency is a requirement to transact more efficiently.”

One area in which greater transparent would assist the asset class concerns risk aggregation. Takken-Somers explains that at PGGM they manage a portfolio with seven investments, which means it’s likely there is some overlap between investments that they simply aren’t aware of.

“For this reason, it would be ideal if we knew exactly the programs and layers that our client is invested in,” said Takken-Somers.

She raises a valid point, explaining that greater transparency here would enable the firm to avoid any large concentrations of certain counterparties and specific risks. And, with more and more ILS capital finding its way into a broader range of risks and regions, the potential for increased concentration and risk aggregation has the potential to increase further.

Profitability across the insurance, reinsurance, and ILS space is under increasing pressure in the current market environment, contributing to a number of discussions about the need for greater market efficiency. In response, firms have been looking at reducing costs and boosting efficiency, and Takken-Somers explained that greater ILS transparency could assist with improved market efficiency.

“Transparency gives us the ability to understand all links in the distribution chain. We then have the ability to self-assess the value of each component, and ultimately to look towards the most efficient implementation that works for our client.

“We don’t want to be dictated by the market for structures, since we have our own objectives. We believe that the market should give us this transparency so that we can decide what works best on behalf of our client,” said Takken-Somers.

Ultimately, Takken-Somers explained to Clear Path Analysis that transparency promotes greater management and board confidence on the investor side.

Greater understanding and confidence in the asset class is likely to result in increased participation from first-time market players, which in turn would help the ILS asset class to continue to expand its remit.

Takken-Somers also concluded that she doesn’t believe added ILS market transparency would result in higher costs, essentially impacting the return of the asset class.

“It does require a little more effort on our managers’ behalf, but we don’t need this information on a monthly basis. If it is given to us twice a year after the major renewals, then I don’t see this as a large contribution of their time. As a matter of fact, we have increased our transparency in the last two year without any detrimental effects on the relationships or costs,” she said.

The latest report from Clear Path Analysis, the sixth annual ILS for Institutional Investors report, from can be downloaded from its website.

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