Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Insurance-linked securities funds: excellent profits, low volatility


An article published today on Opalesque, a publisher of news and insight on the alternative investments and hedge fund market, highlights insurance-linked securities as an asset class offering attractive returns. The article which briefly discusses the fact that small hedge funds have been outperforming larger hedge funds in January 2012, picks out ILS as one of the key highlights of January.

According to the article, hedge funds investing in insurance-linked securities (predominantly catastrophe bonds as they make up the bulk of the ILS market), continue to post excellent profits with low volatility. The low volatility for a seemingly risky asset is one of the factors that is attracting new investment capital to the market.

2011 was certainly a year of volatility for the ILS and cat bond market, given the high catastrophe re/insurance losses and actual losses to cat bonds. However the year still saw most ILS funds we know of return positive profits to investors despite the losses and triggered deals.

The Opalesque article also notes that hedge funds who invest in ILS have delivered annualised returns of 7% and a sharpe ratio of 2 over the last six years. Pretty impressive for a niche market and positive sentiment such as this is sure to help continue the recent trend of attracting new capital sources to the market.

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