UBS Hedge Fund Solutions, a division of UBS Asset Management focused on managing and advising on a range of alternative assets for clients, has revealed that looking across 2025, the group continues to see reinsurance and insurance-linked securities (ILS) as one of its highest conviction themes in Credit & Income.
A recent commentary released by the division, revealed that profits that were generated from reinsurance and ILS fund strategies in December 2024 were primarily attributable to carry from long investments classes.
“Reinsurance/ILS strategies generally produced positive returns in December. Coupon income and spread tightening drove returns for the catastrophe bond manager, while premium accrual carry drove returns for the collateralized reinsurance manager,” the firm said.
Adding: “Collateralized reinsurance pricing was slightly lower than last year but remained historically attractive. Catastrophe bond pricing also moderated due to material spread compression over the past year, while the risk-free rate also declined 100 basis points over this time frame.
“Nevertheless, all-in yields were attractive compared to other carry investments.”
Throughout Q4’24, within Credit/Income allocations, the asset manager also noted that it continued to benefit from income earned from reinsurance.
And now, looking ahead for 2025, the UBS Hedge Fund Solutions team stated that it continues to see reinsurance and ILS as one of its highest conviction themes in Credit & Income.
“We recently took some profits in the collateralized reinsurance space, and plan to maintain our exposure from here as risk-adjusted returns are still materially above average historical levels,” the firm added.
Within its investment model, the UBS Asset Management hedge fund team continues to give reinsurance and ILS investments a 3% of portfolio weighting, which is the same as we saw back in the middle of 2024.
This remains a typical weighting for the ILS asset class, as catastrophe bonds and ILS usually tend to be utilised as a diversifying category which institutional investors put a relatively small proportion of their overall assets into.
Furthermore, many investors within the ILS space have taken some profits following two strong years of returns earned in 2023 and 2024, which has ultimately allowed them to extract capital while still maintaining allocation sizes and exposure.
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