The multi-asset class approach adopted by independently owned insurance and reinsurance linked specialist investment fund manager, Twelve Capital, allows flexible capital allocation while taking advantage of significant synergies.
This is according to Twelve Capital Founding Partner, Chief Executive Officer & Chief Investment Officer, Urs Ramseier.
Speaking with Artemis, he explained why the company has taken a multi-asset class approach.
“Twelve has been investing in Cat Bonds and Private ILS for almost 15 years. In addition to these asset classes, in 2010, Twelve launched an Insurance Bond strategy. This was driven by noting that, for example, bonds issued by AXA were trading at only 45%. Twelve was aware that these bonds would no longer qualify as regulatory capital under Solvency II and would, therefore, be paid back at par.”
The introduction of Solvency II in 2016, he continued, also created a new opportunity for private debt that simply wasn’t available under the Solvency I regulatory regime in Europe.
“From a business perspective, this multi-asset class approach allows flexible allocation of capital in the best interests of clients. Twelve Capital’s investment activities are not bound by a limited offering but are focused on investor interest, which promotes a more flexible approach to capturing opportunities,” said Ramseier.
This approach enables Twelve Capital to optimise its portfolio positioning dependent on price. If a particular segment is priced at a level less attractive than required, the firm chooses not to invest and can look elsewhere to reallocate under more favourable and attractive terms.
“For example, a few years ago, pricing in reinsurance and Private ILS declined in certain lines of business to a level where it was no longer attractive. In this instance, portfolio exposures were significantly reduced and the focus moved to other areas with better-priced risks. Another example is that Twelve‘s clients were less exposed the natural catastrophe losses of the last two years, as credit and equity strategies helped to support performance.
“In addition, significant synergies can be generated between the different insurance asset classes, mainly in the sourcing of transactions and in analytics. Also, with its extensive knowledge of the ILS business, Twelve is able to exploit mispricing in insurance credit and equity – either structurally or on a seasonal basis,” he said.
The firm’s multi-asset class approach also saw it launch an insurance equity strategy more than three years ago in conjunction with one of its lead investors. Since then, Ramseier explained that Twelve has established an excellent track record of capturing different underlying trends in the insurance sector.
This includes its recent 3% equity stake in UK retirement income and insurance product provider Just Group plc.
“A key focus in the equity strategy is on the trend of consolidation within the insurance industry by investing in companies that Twelve believes are potential take-over targets or that Twelve expects to go through a major restructuring.
“In addition, Twelve seeks to exploit mispricing in reinsurance and Floridian homeowner insurance stocks during and after the US Hurricane season,” said Ramseier.
Unlike all other insurance-linked securities (ILS) managers, Twelve Capital remains completely independent, and Ramseier told Artemis that this is an essential component of its multi-asset investing.
“Twelve is not owned by any large asset manager, bank or insurance company and is not therefore exposed to any conflicts which could arise through such affiliations. The Group remains privately owned.
“The group also manages segregated mandates for institutional investors as well as co-mingled investment funds. In this way, Twelve Capital is able to execute this multi-asset investment approach with a focus on the risk-return pricing of each sector of interest.”
To end, Ramseier provided insight as to what investment opportunities he sees in insurance over the next two to three years.
“After two years of significant natural catastrophe losses, Cat Bonds and Private ILS have repriced and now offer improved risk-adjusted returns in comparison to two years ago, in Twelve’s view.
“Insurance Bonds and Private Debt yields are higher than the other sectors with generally lower default probabilities than in any other sector. In particular, Twelve believes that the new Restricted Tier 1 bonds offer attractive risk adjusted returns. Small and mid-sized insurance companies are looking more and more for Private Debt. This offers the potential to construct well-diversified Private Debt portfolios with stable returns.
“Finally, there should be increased attractive equity investment opportunities due to the consolidation of the insurance industry for investors who understand the drivers of this complex sector.”
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