Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Reinsurance-linked investments and catastrophe bonds ‘truly uncorrelated’


One of the largest events in the financial market calendar is the GAIM Conference which was held at its usual location in Monaco last week. The event which covers the hedge fund and alternative investment management sector has increasingly seen a presence from those involved in the reinsurance and insurance-linked investment space, including investors and fund managers operating in the catastrophe bond space, and this years event was no different.

Insurance-linked securities, cat bonds and reinsurance-linked investment opportunities are continuing to grow their profile in the alternative investment space and the GAIM event is an ideal place for managers and potential investors to come together. We’ve spoken with a number of attendees of the event who report that ILS and cat bonds were a topic of much conversation this year.

We hear that this years event was very well attended by pension funds and many of those funds representatives said that they are looking to make new allocations to hedge funds and other alternative investments, with reinsurance an area of particular interest. We’re told that at least one large pension fund is looking to make a ‘sizeable allocation’ to the reinsurance and insurance-linked space as soon as the market conditions are conducive and able to support a large inflow of capital. Good news for the markets we cover.

Reuters have reported from the event that investors are increasingly looking towards exotic alternative investments as mainstream hedge funds have seen losses this year. Managers of alternative funds seem likely to profit this year as many investors seek to allocate a portion of their funds into assets which may be slightly more risky, but right now are making more attractive returns.

We hear that ILS and cat bonds are considered as alternative opportunities to watch right now and in fact many investors feel they are a secure and much safer investment than many traditional asset classes right now. One investor we spoke to who had attended the GAIM event said that the rigorous analysis of risks by many ILS fund managers is one of the factors which attracts investors to the space, and he felt that the ILS space demonstrates more robust investment standards than many others. That’s a positive for the sector and something that needs to continue, although we do feel that some ILS fund managers need to get better at selling their portfolio management skills.

The Reuters article says that the pension fund of UK bank Barclays is actively looking at the reinsurance space right now, it’s likely that they are just one of a number of large pension funds analysing ILS fund managers right now. Barclay’s chief investment officer Tony Broccardo is quoted as saying that the reinsurance-linked investment space is ‘truly uncorrelated‘ as returns are not linked to equities or traditional bond markets. He’s also quoted as saying that the pricing of reinsurance-linked securities become much more attractive after a big event, further backing up the increased interest investors have shown in the ILS and cat bond space since the catastrophe strewn 2011.

Many investors at the GAIM event said that finding alternatives can be difficult. This is why the ILS and cat bond market needs to get much better at promoting itself, singing its own praises and learning to show off the unique portfolio managing skills that the sector demands so it can capitalise on the continuing interest in the asset class.

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