Catastrophe bonds and peak perils private insurance-linked securities (ILS) are the way forwards for ILS and reinsurance investment manager Twelve Capital, who said today that it aims to take its ILS strategy to the next level with a renewed focus on these market segments.
Twelve Capital has been offering clients investment opportunities across the insurance and reinsurance market balance-sheet since 2010 and among these the manager has developed a specialism in catastrophe bonds and private collateralised reinsurance and retrocession activities.
With ILS an asset class currently seen to experiencing good performance in catastrophe bonds and satisfactory performance in the private ILS space, Twelve Capital notes that they continue to exhibit low correlations to other asset classes and as a result believes they are a suitable addition to investor portfolios at this time.
The company said that it has recently “fundamentally reassessed and further developed its ILS strategy by reviewing its product offering.”
Twelve Capital said it is expecting further strong growth of the catastrophe bond asset class because it has been delivering such good performance in recent years, despite the heavy insurance and reinsurance industry catastrophe losses.
The ILS fund manager already manages a UCITS structured fund with over $600 million of cat bond assets in it, as well as offering bespoke mandates for large institutional investors.
Cat bonds are one of the two areas of future ILS focus for Twelve Capital, with the other being peak peril private ILS, so private collateralised reinsurance and retrocession arrangements.
Twelve Capital is now intending to focus on solely the peak peril zones, so an overall less diversified private ILS strategy, with U.S. hurricanes and California earthquake risks to be key among them.
“Twelve Capital sees little additional value to continue further diversification within Private ILS,” the company said.
Adding, “Twelve Capital believes that peak perils offer improved risk adjusted returns within ILS and are better modelled and understood than other risks in the industry. Currently, significant premium increases are being experienced within the sector and Twelve Capital offers attractive solutions to provide its clients access to these attractive risk adjusted returns.”
To help it manage this renewed focus on peak peril zones and catastrophe bonds, Twelve Capital said it will invest in improving its analytics capabilities, particularly with respect to climate change and climate risks.
Adding to its already significant internal catastrophe risk modelling and analytics expertise, as well as its work with technology focused climate company reask, Twelve Capital intends to invest to better understand the impact of climate change on the development of tropical cyclones.
“Based on their extensive expertise and substantial experience, Twelve Capital and reask believe that developments in technology and computing power continue to materially enhance ILS investment processes,” the company explained today.
Finally, the ILS fund manager also said that it intends to make use of innovative solutions to mitigate the tail risk embedded in peak peril portfolios, in combination with a multi asset class investment approach to ILS.
Commenting on the news, Urs Ramseier, CEO and CIO said, “With Twelve Capital’s revised ILS strategy, the Group aims to further enhance its position as a one-stop resource for insurance investment solutions for institutional clients. This reflects the firm’s aim to provide cutting edge investment solutions for the entire insurance balance sheet and is expected to further strengthen Twelve Capital’s position as a global market leader in ILS, particularly in Cat Bonds with a strong focus on ESG.”
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