The range of investors who are targeting the insurance-linked securities (ILS) and reinsurance sectors as an investment asset class, or complement to their business, continues to expand, as knowledge and understanding of the opportunity spreads.
It’s not always particularly clear who the underlying investors in ILS, catastrophe bonds and reinsurance-linked investment funds or vehicles are, but occasionally information becomes available that sheds a little light on the expanding investor base that ILS now attracts.
The ILS and reinsurance-linked asset class is really still in its infancy, having seen the first cat bonds as far back as 1996, but with the majority of investors likely only discovering the asset class since 2010. As a result, many investors are only now coming on board as they have gained an understanding of ILS and got comfortable with the asset class.
Also, there are now more ILS and reinsurance investment vehicles that are open to different types of investors, which is having the effect of growing the investor base and the general awareness in the asset class much more rapidly. As a result we’d expect to see many more investors coming on board in the coming years.
Anyway, the interesting example of an investor in the space that has just come to light this week is one Premier Diagnostic Health Services Inc., a Canadian company that; “Provides, through its subsidiaries, advanced medical diagnostic tools using PET/CT technology and/or MRI technology and related diagnostic skills in Canada and in the People’s Republic of China, in partnership with local medical professionals, public and private investors, hospitals and clinics.”
Premier Diagnostic Health Services announced that it intends to buy shares in a parent company of a Bermuda registered reinsurance business. This Bermuda reinsurance company underwrites and collateralizes its obligations through the issuance of insurance-linked securities (ILS)., according to the announcement. These ILS instruments or notes are offered to third-party investors and the resulting proceeds from the sale is used to fund (collateralize) the reinsurance business.
Very interesting. A company or corporation has not matched the typical profile of an ILS or reinsurance linked investor in the past, but perhaps this is something we may see more of. Typically we expect ILS investors to be large institutions, pension funds, endowments, family offices, private banks, insurers, hedge funds etc.
However, companies and corporations often have capital that they invest in various asset classes, sometimes this capital is akin to float except it comes from their sales cycle. They seek to invest this to make the best profit they can while the capital is not required within the business. For companies seeking to invest their capital in this way, ILS and reinsurance could be a very good fit.
We haven’t yet been able to identify who the reinsurance company is that Premier Diagnostic Health Services intends to invest in. That information may become available, if it is a listed entity, once the investment is complete. It is also possible that this is a little more than just a passive investment and that the firm actually sees the benefit in becoming more involved in the reinsurer it is investing in.
The firm is investing $1.505 million into the unnamed reinsurers parent company, at a price of $0.50 per common share. So this is not a massive allocation to the sector and is not ground-breaking in that respects, however it is interesting to see the types of companies that are increasingly gaining an appreciation for ILS and reinsurance as an asset class. We’ll update you should more information become available to us.