Swiss Re Insurance-Linked Fund Management

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“Solid returns” expected for ILS asset class in second-half: Liu, Amundi US


With seasonality set to boost already high returns for insurance-linked securities (ILS), Chin Liu of Amundi US Investment Management is expecting “solid returns” and sees a positive outlook for both catastrophe bonds and other ILS strategies.

chin-liu-amundi-us-ilsThe outlook for the ILS market is favourable as positive pricing trends are expected to continue, according to Amundi US’ Director of Insurance-Linked Securities (ILS) and Portfolio Manager Liu.

“We believe the positive pricing trends in ILS can remain in place as the hard market continues,” he explained in a note to investors with the semi-annual reports for the two ILS fund strategies Amundi US offers its clients.

As we reported last week, the asset manager has been growing its new Pioneer Cat Bond Fund strategy in recent months, but its more collateralized reinsurance and quota share focused Pioneer ILS Interval Fund had shrunk a little further.

Liu noted that the ILS pricing environment is now greatly improved.

“Since the bottom of the last “soft” market, which occurred in 2017, the ILS market has experienced a cumulative pricing increase of more than 80%,” he explained.

He also noted that ILS has continued to display its general lack of correlation to broader financial markets.

Saying, “That characteristic continued to exhibit itself throughout 2022 and over the first four months of 2023, especially when compared to the market volatility in stocks, bonds, and other traditional asset classes.”

Discussing the ILS Interval Fund that he manages, Liu noted that the majority of the annual returns from reinsurance-linked investments tends to come in the second-half of the year.

“Therefore, we see the potential for solid returns for the ILS asset class later in 2023,” he said.

On catastrophe bonds, Liu is particularly positive, saying, “At current prices, we believe CAT bonds offer a potentially attractive entry point.”

Adding, “The pricing environment as of the end of April stood at a decade-high level, with an outlook we view as favorable.”

He noted that major reinsurance firms, like Swiss Re, have been increasing their prices and asking cedents to retain more risk.

Highlighting that, “We see both of those actions as being potentially positive for CAT bond investors.”

Looking ahead, Liu sees the outlook for investors as greatly improved, with decadal high returns possible.

“We believe the combination of a continued hard market, supply/demand imbalances, and the recent substantial price increases may present an attractive opportunity for long-term investors to take advantage of a meaningful market dislocation,” Liu explained.

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