South Korean pension fund looks to catastrophe bonds

The benefits of investing in insurance-linked securities (ILS) are spreading in Asia, with South Korea the latest country where pension funds are learning to appreciate the low-correlated and relatively stable returns possible from catastrophe bonds.

According to an article from Pulse News, the South Korea’s Public Officials Benefit Association, the pension fund manager for government workers pensions, as well as with other institutional investors such as the South Korea pension service, one of the largest public pensions in the world, are ready to allocate to investments in catastrophe bonds.

Pulse reports that the investors are ready to allocate 40 billion won (around US$36.6 million) in catastrophe bonds, as they search for higher returning asset classes amid the prolonged low-interest rate environment.

Local sources told Pulse that the Public Officials Benefit Association will choose a broker and asset manager to look after its overseas allocation to insurance-linked securities.

A process is underway to select an investment manager, likely one of the leading ILS fund managers, with applications required by the 23rd September, it is reported. It’s expected that two or more catastrophe bond or ILS funds will be allocated to by the pension fund within the next month.

Pulse said that this is the first time that a South Korean institutional investor will have looked for returns from the catastrophe bond market. If larger pension funds, such as the South Korean National Pension Service also follow suit that could bring significant new assets to the ILS fund market.

The news is another sign of the growing profile of ILS and catastrophe bonds among investors in Asia, as we heard from speakers at Artemis’ recent conference in Singapore. There is significant investor interest in any asset class that can deliver returns, so when it also offers low-correlation, good diversification properties and a stable return profile, like ILS can, popularity could be high.