Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

ILS market strategies increase in maturity, sophistication, and scope


The structures, investors, funds and managers that make up the expanding insurance-linked securities (ILS) market continue to mature and grow in sophistication, creating an asset class that’s flexibility and capacity can benefit a range of investor needs, according to industry experts.

Being largely uncorrelated with broader financial market activity, a key attraction for investors in the space, the ILS sector continues to mature as players that operate in the sector, and new market entrants, increasingly view the asset class as a viable investment.

While dedicated ILS funds/managers are relatively young when compared to other financial market investment vehicles, its benefits and advantages are becoming increasingly understood and realised by a growing number of capital markets, and traditional re/insurance market participants.

“One of the key parts of this whole fund manager business in ILS is that since managers are maturing, they’ve actually become more sophisticated over the years as the asset class has grown,” said Paul Schultz, Chief Executive Officer (CEO) of Aon Securities, as part of an A.M. Best Review on the evolution of ILS.

“I think their ability to offer different products is much greater than it used to be. When the industry was small, it was more difficult to distinguish between strategies of ILS managers because they had only had access to certain types of risk,” continued Schultz.

Historically, and perhaps more evident since the wealth of alternative reinsurance capital began to have an influence on the broader reinsurance marketplace, ILS capacity has been heavily focused on property catastrophe lines that are easier to access and better understood in terms of modelling and pricing.

Catastrophe bonds have for some time been the hallmark of ILS market activity, but as well as this sub-sector of the ILS space growing significantly in recent years, collateralized reinsurance, sidecar ventures, ILWs, and collateralized ILWs have started to gain some momentum.

In fact, Artemis discussed recently that reinsurance broker Aon Benfield noted strong growth across a variety of ILS structures and features during 2015, a year that saw the collateralized reinsurance space make substantial progress, along with another strong year for catastrophe bond issuance.

Furthermore, ILS funds and managers are increasingly adopting varied strategies and approaches to the ILS space, enabling capital markets investors with more and more ways to operate in the space.

“Now you’re seeing some managers create rated vehicles. And some managers have access to large platforms. So they’re offering investors different ways to participate in the asset class,” said Schultz.

An example of a rated ILS vehicle can be seen with both Humboldt Re Limited and Kelvin Re, domiciled in Guernsey and established by ILS investment manager Credit Suisse Asset Management (CSAM).

Both Humboldt Re and Kelvin Re are examples of reinsurers looking to embrace hybrid or alternative investment strategies, a trend that some in the space expect to increase in the coming months as companies look to embrace both equity and third-party capital to increase efficiency and diversification.

The majority of investors in ILS funds, according to Best’s Review ILS Funds Evolve publication, are large institutional investors such as pension funds.

However, mutual funds, hedge funds, and increasingly insurers and reinsurers are participating in the space, driven by a desire to utilise the wealth of diversifying capacity and to take advantage of uncorrelated, steady returns.

Furthermore, should hybrid, or alternative investment strategies adopted by insurers and reinsurers prove successful during testing market times, it’s likely more and more re/insurers will look to work with a greater portion of ILS capacity, either through a specialist fund or via the establishment of their own ILS team.

As the market has continued to expand in terms of its investor base, sponsor base, and capacity, so to has its understanding of risks. With returns across the insurance and reinsurance market remaining pressured, yields in the cat bond space have been lower in recent times than perhaps some investors are used to.

But owing to the willingness of the sector’s investors to assume insurance, or reinsurance-linked exposures, funds and managers have continued to innovate and develop a varied range of investment strategies to suit the needs of a range of ILS investors, further supporting the growth of the market.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis ILS NYC 2023 - Insurance-linked securities conference in New York City

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.