LGT ILS Partners confident pricing will remain at attractive levels into 2024

LGT ILS Partners, the specialist dedicated insurance-linked securities (ILS) investment unit of the private bank and asset manager LGT Capital Partners, is confident that market conditions are going to remain attractive into 2024, even expecting some marginal price increases in certain areas of the reinsurance renewals.

LGT ILS Partners has experienced “robust performance” across its range of ILS and catastrophe bond investment fund strategies in 2023.

The ILS manager said that its 2023 LGT ILS portfolio strategy was “thoroughly put to the test” this year, as insurance and reinsurance market catastrophe losses once again reached over US $100 billion.

Efforts to de-risk and re-underwrite the ILS portfolios at LGT ILS Partners have “started to bear fruit”, as a result of which “the adjusted allocation strategy and robust portfolio composition of LGT ILS funds and mandates have provided the expected robust return, despite the continuously high loss burden,” the investment manager explained.

Heading into 2024, the LGT ILS Partners team remains focused on further optimisation of the LGT ILS fund portfolios, with a continued focus on “improving the performance and sustainability of our funds,” the ILS management team said.

The re-positioning saw LGT ILS Partners shifting away from frequency risk, with more of a focus on peak peril occurrence covers and higher layers in reinsurance towers.

At the same time as the ongoing optimisation of ILS portfolios. LGT ILS Partners also notes that market conditions remain very attractive, with risk premiums still elevated and attachment points higher.

“The attractive dislocation between demand and supply witnessed this past year very much benefited investors who remained committed to the asset class,” the LGT ILS Partners team said.

Adding that, “Whilst the market is now showing signs of stability, demand from protection buyers (insurers and reinsurers) remains high and we expect capacity providers to maintain pricing discipline – we are thus very confident that the market for ILS investors will continue to be attractive throughout 2024.”

The 2023 LGT ILS fund portfolios have delivered robust performance despite continued very high levels of catastrophe industry losses, which “underlines that the actions taken by the LGT ILS portfolio management team are bearing fruit.”

The goal has been to improve the return momentum of the ILS funds and the LGT ILS Partners team expects more opportunities to further hone this into 2024.

“The ‘harder’ market environment with stronger premium earnings and the higher collateral yields have supported our re-positioning, as it allowed us to discontinue transactions and rebalance the portfolio whilst still generating a very attractive return level,” they explained.

With renewal negotiations well underway for the January 2024 reinsurance contract signings, the LGT ILS Partners team explained that their sentiment on the market is being affirmed by both the clearing level of recent catastrophe bond pricing, as well as the indications from their collateralised reinsurance renewal discussions.

They conclude from this that, “Following the fundamental repricing witnessed in the global reinsurance market, price levels are staying firm at current levels or are in some areas even marginally increasing.”

Significant price increases are not anticipated, but at the same time neither is any softening of reinsurance pricing of any significance.

Meaning the LGT ILS Partners team is confident “the price environment will remain at these attractive levels as we move into 2024.”

The ILS management team at LGT conclude, “The outlook for the market therefore continues to be positive, and the upcoming year presents ILS investors with a continuously attractive return outlook.

“The general sentiments in the global financial market with higher interest levels impacting re-financing costs across all market segments emphasizes the value of a low-correlated diversifying asset class such as ILS.”