Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Juniperus Capital on Profiting from the Insurance Risk Market


Below is some interesting insurance-linked securities investment insight that just came through to us in a press release. It’s taken from a press release for certain Marcus Evans conferences and features an interview with Philip Lotz, Chief Executive Officer & Chairman, and Stephen Velotti, Chief  Underwriting Officer of Juniperus Capital Limited.

Press release begins.

The insurance risk investment market is truly uncorrelated with the broader financial markets and worthy of at least some exposure by institutional investors, say Philip Lotz, Chief Executive Officer & Chairman, and Stephen Velotti, Chief Underwriting Officer,
Juniperus Capital Limited. A service provider at the upcoming marcus evans Foundations & Endowments Investment Summit 2011 and US Pensions Summit 2011, Lotz and Velotti highlight the attractive opportunities in the insurance asset class and offer their tips for entering the new market.

How can institutional investors benefit from insurance risk? What is the best way of entering this asset class?

Philip Lotz: Institutional investors have found this asset class to have low to no correlation with traditional asset classes. Returns have been good, with expected or better than expected returns.

Stephen Velotti: Even during the financial meltdown in 2008, the entire asset class performed quite well. Large institutional investors should consider some exposure to this class; they can go with the traditional ILS cat bond fund, which tend to produce a low but steady return, or traditional collateralized reinsurance which produces a significantly higher return but does have a little more volatility. Collateralized reinsurance has a better risk / return profile over the long run.

Philip Lotz: I would recommend entering this space through a third party manager, who would typically have the expertise in evaluating the risks. When considering ILS bonds, it is important to look at the manager’s experience and track record; for collateralized reinsurance, also the manager’s analytics and market participation.

What is your outlook for this sector?

Stephen Velotti: Most buyers are adding collateralized reinsurance to their portfolio in very small increments. There is plenty more room for growth.

Philip Lotz: At the moment there is more investment demand than there is product, therefore there has been more and more use of
collateralized reinsurance to fulfill that need. If I were an investor, I would make sure to work with managers with significant expertise in collateralized reinsurance, which seems to be where most of the investments are going to be made in the reinsurance market.

What long-term strategies would you recommend?

Stephen Velotti: Potential investors need to look at the asset class with a long-term perspective. In any given year there could be a
natural disaster making it difficult to trade out of a position without a loss. However, the following year’s pricing will most likely spike up to beneficial levels. In the long run investors will be able to attain some reasonable returns that have very low correlation to the broader financial markets.

Philip Lotz: For most investors this asset class does not fit neatly into a box which makes it more difficult for them to get to know the class. Entering any new asset class requires education and an investment strategy for making it work. I would challenge the
investment community to broaden their horizons and increase their capability for investing in a completely different asset and taking advantage of uncorrelated risks. Any investment in insurance risk is a good investment in our opinion.

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