Schroders looks to ILS expansion, with Lloyd’s and run-off targets: Ruoff

Schroders Capital continues to explore opportunities to expand its specialist insurance-linked securities (ILS) investment management business, with the Lloyd’s market and run-off business seen as two possible avenues of opportunity.

Speaking with Artemis, Stephan Ruoff, Global Head of Insurance-Linked Securities (ILS), Schroders Capital, explained that the investment manager has had a lot of success over the last year or so.

Ruoff told us that 2021 has been, “So far an interesting year with substantial growth in AuM and good performance – Until Hurricane Ida only though.”

The year remains uncertain, given the occurrence of fresh catastrophes and as a result full-year performance is challenging to predict.

“2021 seems to develop into yet another year with high nat cat losses,” Ruoff explained. Saying that, “H1 was already the second highest period for the first half of the year in terms of insured losses, and we obviously have seen two large events in H2 – German floods and Hurricane Ida.”

He also noted the ongoing US wildfire season as another potential threat to reinsurance and ILS markets.

But overall, 2021 has been positive for Schroders Capital, with gains on the investor-side and a continuation of preliminary work to build out its investment strategies offering.

“We saw increased interest from our investors in our cat bond funds,” Ruoff said, “Our GAIA Cat Bond fund has grown to become the largest UCITS fund in the ILS space.”

He also said that Schroders Capital has seen “significant demand for our Life ILS products and our broader ILS strategies,” as well.

Predominantly, Schroders Capital’s ILS funds are property catastrophe focused, but the life insurance and reinsurance side continues to grow in importance for the investment manager.

On top of this, Schroders Capital has a desire to expand the range of ILS fund strategies it has to offer investors, so work to research and evaluate new fund launches continues.

Investor demand remains strong and this has led Schroders Capital to believe that longer-term it can grow the ILS business further.

“We are heavily engaged with existing and potentially new investors on ILS and are positive about long term AuM growth as investors clearly understand and appreciate the diversifying benefits the ILS asset class offers with its uncorrelated return benefits,” Ruoff explained.

He added that, “Short term growth might get impacted by external shocks such as a major, loss-producing cat event.”

But overall, Ruoff said that, “We expect investor interest in the asset class to remain strong and also expect the flight to good quality ILS asset managers to continue as, among others, performance, avoiding adverse loss development, understanding of climate change-related impacts and open and timely investor communication will be key differentiators going forward.”

These are all traits of successful ILS fund management operations. But part of that is also responding to both investor and insurance or reinsurance market demands, to identify areas that new capital may be beneficial and able to derive attractive returns for investors.

Ruoff noted that, “We are well positioned with our product range ranging from non-life cat bond and broader strategies, our pure Life funds, or single investor mandates.”

But further explained that at Schroders Capital there are, “ambitious goals to expand our product platform offering access to Lloyd’s of London or business run-off.”

Overarching new ventures into different areas of insurance and reinsurance though, has always been in the Schroders Capital DNA, Ruoff said.

“We continue to build on that DNA and our value proposition to differentiate ourselves from our competitors,” he explained.