Swiss Re Insurance-Linked Fund Management

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Twelve Capital sees private ILS rates holding up, grows assets to $3.5bn


Rates, pricing and conditions held up best for private ILS transactions at the January reinsurance renewals, according to insurance-linked investment manager Twelve Capital, with rates only dropping around 5%.

The January reinsurance renewals have seen a range of estimates for price declines, largely suggesting that rates were down anything from -5% to -15% or higher, depending on the line of business and geographical region covered.

At the same time generally terms and conditions are considered to have kept expanding, although at a slower rate than in previous renewals as the stretching of terms is perhaps reaching as far as it can go for many risks.

However the rates in the ILS market appear to have held up particularly well, with a number of brokers and observers citing evident underwriting discipline among ILS fund managers as helping to slow the decline.

ILS, collateralised reinsurance, hybrid insurance debt, bonds and insurance equities investment manager Twelve Capital agrees, telling us that on average reinsurance rates in the private ILS space only dropped by around 5% at the renewals.

This level of price declines was “much less than feared and without any significant deterioration to conditions in our opinion,” according to Twelve Capital.

In fact the renewal appears to have been relatively orderly for the ILS sectors, with the increasing number of private ILS transactions and collateralised reinsurance underwritten not requiring too much in the way of negotiation to get closed.

In fact Twelve Capital said that on some accounts the renewal actually saw conditions improving for the underwriters on some more stable lines of business.

“For most property accounts, negotiation was required to keep premiums at an acceptable level, however other lines of business looked stable and conditions also improved in some instances,” Twelve Capital explained to us “Overall, the data from our portfolios suggests a generally stable renewal with acceptable premiums to risk multiples.”

Overall Twelve Capital kept its allocations to private ILS and catastrophe bonds roughly stable at the renewals, not increasing its underwriting of any one side of the market significantly. Additionally the ILS managers allocations to private cat bond instruments remained relatively stable, not making up more than 10% of any of the portfolios managed.

Across 2015 Twelve Capital had a successful year, in terms of growth in assets under management. at the end of 2015 the insurance-linked investment manager told Artemis its total assets under management had grown across the year to approximately $3.5 billion.

The $3.5 billion is split across various strategies, in insurance bonds, insurance private debt, its ILS and cat bond strategies and the managers ‘best ideas’ strategies which invest across the insurance balance-sheet.

The ILS and cat bond strategies now counts approximately $1.3 billion of assets managed at the end of 2015, which represented growth of 30% in just the last six months (as the figure sat around $1 billion at mid-year 2015).

Across the managers catastrophe bond funds returns ranged from 2.5% to 6.5%, for 2015, demonstrating the different performance available depending on investor risk appetite.

Twelve Capital is not the only ILS manager to record impressive growth in ILS assets over the second-half of 2015. A number have increased their assets as they grew their participation in private ILS deals and collateralised reinsurance underwriting.

The fact that ILS rates held up relatively well at the reinsurance renewals and that ILS managers have been able to increase their AuM’s suggests that the ILS players have been growing their profile and share of renewal business globally, which bodes well for future growth opportunities as the capital markets increasingly penetrate the reinsurance market.

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