Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Private ILS transactions; a way to profit from higher reinsurance rates


The creation and issuance of insurance-linked security transactions specifically for private investors benefit is a trend we are likely to see increasing as the ILS and catastrophe bond markets mature, more investors get involved and investment managers seek new ways to provide capacity in the market for their customers.

The private side of the ILS market tends to keep a low profile and information is hard to come by on the transactions that take place. The deals aren’t rated by agencies such as Standard & Poor’s or Moody’s and are rarely publicised. However it’s a growing aspect of this market and one that is sure to continue growing, especially if investor demand outstrips issuance for major catastrophe bonds and ILS transactions.

We’ve heard of a number of investment managers creating private ILS transactions as a way to increase their funds capacities. By investing in reinsurance contracts across different lines of business (so assuming reinsurance risk), then transforming it into capital market investment opportunities through the use of remotely domiciled collateral backed vehicles, an investment manager can essentially create cat bond investment opportunities for their private clients.

One of the companies offering such opportunities is Zurich based specialist ILS investment manager Twelve Capital. In an update issued today, they suggest that after the disasters of the last few months and recent pricing fluctuations of insurance-linked securities, that while cat bonds now offer attractive pricing to investors they see specific private ILS transactions as the best way to profit from higher reinsurance rates.

Private ILS transactions can be constructed by investment managers in such a way that they cherry pick the best reinsurance contracts which will give them the best potential for return on investment, thus enabling them to pass on the best investment opportunity to their customers. With the recent press coverage and investment media focus on catastrophe bonds, with some predicting increasing interest from large investors such as pension funds, we’re likely to see this private area of the ILS market grow over the next few years.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

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