ILS inflows expected to rise, as portfolios become cleaner: SCOR IP’s Rossary


Inflows to the insurance-linked securities (ILS) asset class are expected to rise over the coming months, as investor appetite increases, according to Fabrice Rossary, the Chief Investment Officer of SCOR Investment Partners.

fabrice-rossary-scor-investment-partnersAlongside this, the ILS fund market has been working to improve the quality of the portfolios of risk it offers to investors, Rossary implied, saying that “ILS portfolios should become cleaner and more straightforward.”

Against the backdrop of catastrophe losses and trapped capital suffered by many ILS funds and reinsurance linked investment strategies over the last few years, Rossary says that the market has reacted and become more disciplined.

He sees protection sellers as having gained more power, in reinsurance and ILS, as supply/demand imbalances have emerged after the losses and trapping of ILS collateral, as well as the exit of some investors from the space.

As a result, the ILS market has been hardening and risk premiums have been on the rise.

Alongside the hardening of reinsurance and retrocession rates, which plays into higher catastrophe bond and ILS returns, the market has also been cleaning up its portfolios to generate more stable returns.

We’ve been highlighting this in a number of recent articles, as the market is sitting at a point where ILS portfolio return potential has risen, in some cases significantly.

The market has become more disciplined, Rossary explains, saying that “Structures have become more transparent, with less esoteric risks involved and more clarity on perils covered, including a systematic pandemic exclusion.

“Consequently, ILS portfolios should become cleaner and more straightforward if they are invested in pure property cat risks.”

Alongside this, the fact trapped collateral issues are beginning to subside for many ILS fund managers suggests another cleansing of portfolio legacy, making their fund strategies increasingly attractive to new investors.

While investment managers across many traditional asset classes have been significantly impacted by the COVID-19 pandemic, while also facing uncertainty due to the U.S. elections and Brexit, Rossary explains that “ILS portfolio managers, on the other hand, have been sleeping soundly.”

The ILS asset class has continued to perform through all the uncertainty thrown at society in 2020 and continuing in 2021, demonstrating its lack of correlation as returns continued and ILS showed its resilience once again.

As a result, “Against the backdrop of a low yield environment, which is expected to last for a while, inflows to this uncorrelated asset class are expected to rise over the coming months,” Rossary forecasts.

Also read: Occurrence shift insulated ILS against 2020 hurricane frequency: SCOR IP’s Rossary.

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