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Amundi Pioneer sees investor demand for “structurally uncorrelated” ILS


Despite the impacts of the coronavirus pandemic through recent weeks, Amundi Pioneer Investment Management’s ILS team have been seeing continued demand for the insurance-linked securities (ILS) asset class, in particular from investors that are already experienced ILS allocators.

amundi-pioneer-logoAmundi Pioneer managed the Pioneer ILS Interval Fund, a dedicated insurance-linked securities (ILS) focused mutual investment fund strategy that invests broadly across reinsurance linked assets, including catastrophe bonds, sidecars and private collateralised quota share arrangements.

The impacts of the Covid-19 coronavirus pandemic around the globe has had a “profoundly negative impact on the global equity and credit markets as well as selected commodities” Amundi Pioneer said, with uncertainty ongoing as well given the full impact to unemployment, consumer spending and supply chains remains unknown.

In this environment, financial markets and asset classes tend to move largely in lock-step, except for those that can demonstrate a relative lack of uncorrelation to this kind of volatility, among which are insurance-linked securities (ILS) and reinsurance linked assets.

“We continue to see demand from our existing investors, investors who are familiar with ILS, as well as those looking to understand the value proposition of this asset class,” Amundi Pioneer explained recently.

Noting the specific role that ILS can play in investor and consultants search to “create diverse and resilient portfolios by accessing uncorrelated sources of both risk and return.”

The structurally uncorrelated features of ILS “is being demonstrated in the current market” Amundi Pioneer said.

But the investment manager noted that there is much more to ILS and reinsurance linked investments right now, beyond the lack of correlation to the coronavirus related financial market volatility.

A number of features of the asset class “continue to make us very constructive for ILS in 2020 and beyond,” the investment manager continued.

Among these are the recent investment results of the asset class, as well as its correlation metrics and the historic return patterns of allocations to ILS assets, all of which look particularly favourable right now.

The Pioneer ILS Interval Fund itself delivered a 0.36% return for March 2020, 1.44% for the first-quarter of the year and 4.69% over the last twelve months, which is impressive given the scale of some catastrophe losses that have occurred, the marking down of the World Bank’s pandemic catastrophe bond (of which the fund holds a share) and alaso the continued loss creep seen towards the end of last year from certain older catastrophe events.

The ILS fund has been positive right the way through the coronavirus outbreak so far, which is impressive considering the cat bond price pressure that has weighed on some ILS funds in March.

Amundi Pioneer points out the entry prospects for investors into ILS at this time, highlighting that historically some 60% to 70% of ILS fund returns tend to be delivered through the second-half of the year.

It’s also worth considering the increased return potential given the firming up of reinsurance pricing at recent renewals and the fact that is likely to now persist and perhaps accelerate somewhat.

Amundi Pioneer also notes the fact its fund has demonstrated “very little correlation to nearly all major asset classes” over the last five years.

“Over the past month, the structurally uncorrelated nature of ILS has also exhibited a very favorable set of return characteristics compared to the global equity and credit markets as well as many commodities,” the investment manager explained.

Importantly, the investment manager further explains that its ILS fund is behaving as expected, both in relation to the historical performance and more importantly during the current unprecedented financial market volatility.

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