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Covid-19 could drive increased life ILS opportunities: ILS Asia 2020


Overall, the impacts of the ongoing Covid-19 pandemic are expected to be positive for opportunities in the life insurance-linked securities (ILS) space, according to Luca Tres, Partner, Head of Life, Securis Investment Partners.

life-ils-panel-ils-asia-2020Life ILS, the somewhat less prevalent side of the global ILS sector, continues to expand as investors become more comfortable with the risk and the insurance community grows its engagement.

The outlook for the life ILS space is viewed as positive, but in many parts of the world, Asia included, awareness and education around this niche asset class is lacking.

In light of this, the virtually held Artemis ILS Asia 2020 conference included a panel on life ILS (now available on-demand here), featuring Luca Tres of Securis Investment Partners and Tom Spreutels, Head of Origination, Life & Alternative Credit, Leadenhall Capital Partners.

The panel covered numerous topics across the life ILS space and offered some insights into the workings of the asset class, including some of the challenges and benefits of participating in the sector.

One of the benefits discussed and something brought into focus by the ongoing Covid-19 pandemic, is the uncorrelated qualities of the life space.

Similar to the non-life ILS sector, life ILS investments are largely uncorrelated to wider financial market volatility, which, owing to the pandemic, has been significant.

“If the ILS community manages to come out of the worst pandemic of our lives without any substantial loss, I think we pretty much achieved our goal, by providing something uncorrelated and resilient for our investors,” said Tres.

Tres added that there are certain instances whereby some elements of excess mortality can have an impact on investment, although within all of the private transactions that Securis does, the mortality rates required to trigger any losses are so extreme that Tres doesn’t expect any of them to face any issues.

“So, as a whole I actually see Covid-19 to have a positive impact for our industry, because it translates into better opportunities for us to deploy money, and it translates to opportunities to find even more attractive returns,” said Tres.

Of course, perception of correlation might well have changed since the outbreak of Covid-19, as well as perception of risk as a whole.

Against this backdrop, Spreutels explained that he hopes that altered risk perception would translate into more deal flow in the life ILS sector.

“I think in what’s going on right now, we need to bifurcate two things. On the one hand, there is of course a pandemic ongoing, so that’s clearly a mortality event. And, so, question number one is, is that mortality event actually eating into any of your investments. That’s one topic and we will see how this all plays out because it is still ongoing.

“Then, secondly, as a result of the ongoing pandemic, we are seeing some very dislocated markets, at least we saw that in March, and we’ve then seen risk appetite moving in different directions, which means that we can command different pricing because it’s clearly real to people, both borrowers and investors.

“So, on the one hand, there is less risk appetite from the non-specialist players which brings an opportunity for us. Secondly, it probably also means that people in the industry who have been affected by this secondary impact, i.e. the market impact, may start thinking about doing something, which means attractive opportunities for us to go and play, and be part of a solution to the problem that people may be waking up to.”

Spreutels continued to explain to the audience that it’s very interesting that a pandemic, which is clearly something that the life ILS space is directly exposed to, is creating an opportunity set and market volatility and correlation issues, completely unrelated to the real risk.

“And, that’s what makes this sector really interesting, because all of the turmoil we are seeing, it’s not as a result of the mortality but as a result of the lockdowns and all of these other things. And, that brings an overall new opportunity set around new products and new solutions, about how well people were prepared for this and have they really been buying the right kind of covers to deal with pandemics, and that is something we are thinking very hard about,” said Spreutels.

You can watch the full life insurance-linked securities (ILS) panel discussion on-demand here.

Every session from the conference is now available to view on-demand.

As well as the on-demand playback, we will be archiving every session from our online and virtual ILS Asia 2020 conference over on our YouTube Channel in the coming weeks.

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