Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Swisscanto favouring ILS investments over government bonds


Swisscanto, a leading Swiss investment manager established by the Cantonal Banks to pool their fund and asset management businesses, is increasing its allocations to insurance-linked securities (ILS) as an alternative to government bonds.

The asset manager said that due to the fact top-quality bonds, such as government issued, are “failing as a source of return” it has to find alternatives that offer better returns. One asset class it is turning to is ILS.

Swisscanto, which manages around $57 billion of assets, said it is “increasingly investing in securitised insurance” as it seeks investments with a better return than government bonds, which it says to avoid. It cites the fact that ILS’ “performance is largely independent of the fluctuations on the equity and bond markets,” as an additional benefit.

ILS can also offer the investor a return premium it said, although noting that this is small, over the Libor rates on money markets, making it a viable asset class with which to replace poorer performing government bonds.

Investors are increasingly aware of the qualities that ILS such as catastrophe bonds can bring to a diversified portfolio, with factors like the low-volatility (over-time) and low-correlation with wider financial markets proving a source of stability compared to the sometimes turbulent more traditional bond markets.

As large investors and asset managers continue to discover the ILS and reinsurance linked investing asset class, more are expected to learn to appreciate these qualities. Whether ILS issuance and creation of new opportunities for third-party investors in insurance can keep up with demand will remain to be seen.

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