Global investment management group Aberdeen Asset Management, which has around $400 billion of assets under management and advisory, is still attracted to the insurance-linked securities (ILS) and reinsurance-linked investments space even after the major losses of 2017.
Aberdeen Asset Management allocates to ILS and reinsurance linked investment funds for its clients through some of its multi-asset class fund strategies.
One example is its Aberdeen Diversified Income and Growth Trust, which is a London Stock Exchange listed investment fund with around £440 million of net assets, that allocates capital to the Markel CATCo Investment Management London-listed retrocession fund and to two Blue Capital Management reinsurance fund vehicles.
The investment manager said that all three of its ILS allocations saw steep declines due to the industry losses from hurricanes Harvey and Irma. But even after these losses Aberdeen Asset Management notes that in the case of the CATCo Reinsurance Opportunities fund it has returned 7% per annum to investors since its inception.
Aberdeen notes that the ILS fund managers were looking to raise funds to take advantage of rate improvements, particularly Markel CATCo in the retrocessional reinsurance space.
A fact that it says, “Underpins our view that insurance-linked securities offer attractive returns for the long term investor.”
Explaining why ILS investments remain attractive, even after the 2017 losses, Aberdeen said, “Being driven by factors unique to the asset class – premium rates and the incidence of major catastrophes – they add considerably to portfolio diversification.”
Further underscoring the fact that ILS and reinsurance linked investors have not been put off by the 2017 catastrophe loss experience, Aberdeen Asset Managers also highlights that it made a new commitment of $33 million to the Markel CATCo Reinsurance Fund Ltd.
At September 30th 2017 the fund manager had roughly £16 million allocated to ILS across the Markel CATCo and Blue Capital Management vehicles. With the addition of its new $33 million allocation, ILS and reinsurance now constitutes a larger proportion of the overall multi-asset class fund portfolio.
Investors like Aberdeen Asset Management and its clients appreciate the diversified returns they can access through ILS and reinsurance-linked investments, and importantly the ability of these funds to deliver positive performance across the longer horizon of multi-year investments, despite the odd year like 2017 eroding a specific year.
The ability of an asset class to suffer its biggest loss year, but for its average annual returns over say a ten-year period to still be very attractive, compared to other asset classes, is one of the biggest draws to ILS for third-party investors right now.
Add in the possibility of some higher returns, thanks to reinsurance and retro rate increases, and it’s no surprise the asset class is heading for a new high, in terms of assets managed and deployed.