Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Standard & comprehensive reporting would benefit ILS investors


As the insurance-linked securities (ILS) space continues to evolve, increasingly becoming an integral part of the reinsurance and broader risk transfer landscape, industry experts have underlined the benefits of establishing a set of standard, and comprehensive information and reporting guidelines to assist investors in the space.

“The more the industry can help investors better understand the risks they’re taking, the likelier there is a chance of those relationships with those investors being long-term, and being mutually profitable,” said Craig Dandurand, Director, Debt and Alternatives at Australia’s Future Fund.

Dandurand, along with other industry leaders and experts from the insurance, reinsurance and ILS space, as part of the investor panel at the ILS Convergence – 2016 Bermuda conference held in November, shared some thoughts on the need for increased transparency and greater availability of information in the ILS space.

Panel speakers agreed that the ILS space, as it continues to evolve, remains a learning curve, and having as much information as possible for a given transaction enables entities such as the Future Fund to better invest for the benefit of the Australian people. But one area that can cause some concern for ILS investors is the unknown, explained Eveline Takken-Somers, Investment Director at PGGM.

“What I find difficult are indeed the unknowns, so how do you know what you’re missing if you don’t know what you’re missing? Therefore it would be great if the market has a certain standard which we can all understand and will receive a certain amount of information anyway.

“There are so many different standards in reinsurance, so we spend a lot of time comparing manager A with manager B, see what the differences are and trying to understand that. It would help to know that if there is a standard, where it differentiates from, and would we like it or not,” said Takken-Somers.

She continued to explain that PGGM has been in the ILS market for roughly ten years, and is still on a learning curve. With their experience and taking lessons from previous transactions, she explained that the firm attempts to incorporate what they have learnt into new transactions.

As a result, PGGM has quite a comprehensive list of reporting requirements regarding ILS investments, which it looks to incorporate into the actual transaction so they know what information they are going to receive prior to the transaction launching.

This approach makes sense, and helps the firm better understand and prepare for investment in the ILS space, but as stressed by Takken-Somers, a standard across the board would be beneficial for the investors and also the space as a whole, as increased transparency often results in a better understanding and overall acceptance of the asset class, which should support further expansion.

The ILS investor-base is far more mature and sophisticated today than in the past, and now demands to understand more of the underlying exposures in order to optimise their risk portfolio and make the most of the diversification and uncorrelated benefits an ILS investment can bring to the table.

But clearly greater transparency and more information would be desirable and welcomed by the investor space and, as noted previously could promote the expansion of the sector into new regions and perils, and also attract new investors that were perhaps put-off owing to a lack of relative information and transparency.

Michael Hamer, panel moderator and Partner and Senior Analyst at Albourne Partners and Brock Stephens, Senior Investment Analyst at Utah Retirement Systems, discussed a project that aims to improve the reporting of ILS business.

The aim is to develop a standard that enables risks to be reported more similarly, explained Stephens.

“The important thing is to have a template that is a common way of reporting across funds, that will make a huge difference we feel, in terms of being able to manage portfolios. We are hearing here today that a lot of investors now have multi-manager portfolios; where there’s a hugely increasing need to understand your position in a portfolio,” explained Hamer.

More details on the proposed standard can be found on the Open Protocol website.

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