After raising its insurance-linked securities (ILS) assets under management (AuM) by roughly 16% in the first eight months of this year, SCOR Investment Partners (SCOR IP) continues to see attractive opportunities across the sector, according to Sidney Rostan, Head of ILS, SCOR IP.
As shown by our directory of ILS investment managers and funds, SCOR IP’s ILS AuM increased to more than $2.9 billion as of August 2021.
In a recent interview with Artemis, Rostan of SCOR IP, which is the asset management entity of the global re/insurer, explained that this growth is a result of strong net inflows from investors who have reallocated their ILS positions with SCOR IP, additional investments from existing clients, and more recently, inflows from new investors in the ILS space.
Overall, the company feels that during 2021 it has benefitted from favourable conditions, which importantly, continue to be attractive.
“We have seen attractive investment opportunities in all market segments this year (Cat bonds, ILWs and CRI) with spread levels below their 2020 peak but still at or above pre-COVID-19 levels,” said Rostan.
“Thus we have been able to load a number of new investments at favorable price levels in our portfolios so far this year, and to renew positions at materially better conditions than the expiring ones.”
Dependent on broader insurance and reinsurance market dynamics, the performance and therefore attractiveness of the main market segments of the ILS arena can vary.
On the catastrophe bond side of the space, Rostan told Artemis that a record issuance year in 2021 is well within reach, driven in part by a surge in primary market activity.
In fact, the Artemis Deal Directory shows that catastrophe bond and related ILS issuance has already exceeded $16 billion, and is well on track to break annual records in the final quarter of the year.
“This activity has been well absorbed by investors in an excess capacity and rate softening environment, but spreads have been stabilizing in the last few months,” said Rostan.
Adding that, “in the ILW market, spreads have been stabilizing as well in recent months with slightly less protection purchase interests.”
Despite spreads stabilising in certain segments, Rostan said that his firm has witnessed investor appetite for liquidity and transparency, as well as strong interest in its large commingled funds.
“We believe that these will be in demand in the future as they are more cost efficient and easier to diversify. Tailored-made investment solutions will also remain attractive even when invested in CRI instruments, which tend to be less transparent in a commingled fund.
“The importance of well-balanced inflows in our funds during the course of the year is critical to deploy the assets in the fund and to meet renewal deadlines,” said Rostan.
More generally, he continued, the asset class continues to remain attractive for institutional investors searching for uncorrelated returns and attractive yields.
“After three difficult years in terms of natural catastrophes, the reinsurance market has hardened and is once again offering historically high yields. We saw the same phenomenon in 2006 after two difficult years for the reinsurance industry, which allowed us to increase our AuM substantially.
With the January 1st 2022 renewals season fast approaching, Rostan said that it’s still too early to have a clear view but that SCOR IP expects to see another round of premium rate increases at year-end reinsurance renewals both in the U.S. and in the Europe market.
“This increase should be partly fuelled by the recent events like the July Europe flooding and hurricane Ida as well as by the continuous, albeit slowing, creep on COVID-19,” said Rostan.
Looking further into next year, Rostan told Artemis that climate change is going to give rise to opportunities for the ILS market as it is likely to increase protection needs overall, including against new perils in new regions.
“It is also likely to foster innovation, for example on parametric protection solutions in developing countries, which is a good way for ILS managers to get involved in a broader range of diversifying perils,” he concluded.