The City of Zurich Pension Fund has continued to increase its allocation to the insurance-linked securities (ILS) asset class in 2022, with the total reaching over US $700 million by the end of the year.
The City of Zurich Pension Fund managed 19.3 billion Swiss francs in assets at the end of last year.
It was a challenging year for the Pensionskasse Stadt Zürich, as its assets fell to a -10.4% negative return for 2022, with falling stock markets and rapidly rising interest rates the key drivers.
The pension fund has been investing in insurance-linked securities (ILS) for some years now and while these also came out negative for the year, they performed better than many of the other asset classes in allocates to.
Insurance-linked securities fell -3.1% for the City of Zurich Pension Fund, far better than the -18.8% return from its equities portfolio.
The pension fund has been steadily increasing its ILS allocation, having been CHF 280 million at the end of 2020, then rising to CHF 549 million by the end of 2021.
The ILS allocation grew again in 2022, to reach CHF 648 million by the end of the year, which at the time was just over US $700 million, or nearer $725 million at today’s exchange rate.
The pension fund’s overall allocation to alternative asset classes rose to 25% in 2022, up from 20.7% at the end of 2021.
For the ILS asset class, the target allocation size has been 4% of assets for a while now, but was only at 2.5% at the end of 2021, and has now increased to 3.4%.
So that leaves some room left to continue growing the ILS allocation in 2023 as well, for the City of Zurich Pension Fund.
This pension fund’s ILS portfolio is already diversified, as its first allocations to insurance or reinsurance linked investments were on the life side of the market, after which it added P&C catastrophe risk focused ILS fund investments.
The City of Zurich Pension Fund started off with allocations to life settlements and life insurance linked investments, at first through asset manager Broadriver and then later adding an allocation to MiraVast.
It then added its first allocation to P&C insurance-linked securities (ILS), with an investment in funds managed by reinsurance specialist ILS investment manager Elementum Advisors in 2019, before adding an allocation to P&C ILS and reinsurance through SCOR Investment Partners in December 2020 as well.