Earlier this year in February we wrote about the New Zealand Superannuation Fund and it’s plan to move a portion of its investments into insurance-linked securities and catastrophe bonds as a way to secure better returns during the global financial crisis. It seems that move was a positive one for the fund.
Back in February, the Fund suggested it would invest $125m with the potential to grow that to $250m in the ILS asset class. Chicago based Elementum Advisors were chosen to manage this investment for them. By May this year that investment had been increased to about $300m in catastrophe bonds through Elementum. Their investment was mostly in U.S. hurricanes and earthquakes, with some European windstorms and Japanese earthquakes.
The Funds annual report, released today, notes that ‘Investors had become very risk-averse but the risk of natural catastrophes was not affected by the GFC (global financial crisis). The GFC enabled us to get an attractive premium for an income stream completely uncorrelated with financial markets.’
Judging by the tone the annual report the NZ Super Fund seems happy with their decision to try out an investment in insurance-linked securities. ILS seem to have been a good way for them to diversify and achieve a more uncorrelated return. We assume they’ll be sticking with the asset class for the foreseeable future.