Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

VP Bank says ILS has “good prospects”, more overweight ILS than other assets


Liechtenstein-based private bank VP Bank AG has told its clients it currently sees “good prospects” for investing into insurance-linked securities (ILS), with catastrophe bonds seen as a positive diversifying addition to portfolios.

positive-smile-checkVP Bank undertakes asset management and investment consultant activities for private and institutional investors, recommending opportunities including funds, or managing portfolios on their behalf.

VP Bank first added insurance-linked securities (ILS) to portfolios back in 2019, with the firms Chief Investment Officer Dr. Felix Brill saying they added an additional diversification element, which was important amid concerns over possible recessionary factors in the economies of the world.

Alongside a reduction in equity risk taken at the time, around mid-2019, Brill also said that VP Bank saw it as advisable to “hedge the portfolio even more broadly with the addition of insurance-linked securities (ILS).”

Fast-forward three years and those early predictions of a risk of recession may now seem prescient, given the current global macro-economic situation.

VP Bank remains very constructive on insurance-linked securities (ILS) and catastrophe bonds, saying that a defensive portfolio is important at this time, while diversification is paying off and that it sees “Good prospects for insurance-linked securities (ILS).”

In fact, as of July 2022, a presentation by Brill shows ILS as the most overweight asset type in the portfolio mix suggested by VP Bank.

That’s not just in alternatives either, it’s notable that ILS is the only asset type assigned an “overweight” rating by VP Bank, across categories of bonds, equities and alternative asset classes.

“Diversification pays,” when it comes to investments in ILS, according to VP Bank.

In his presentation, Brill explained, “Insurance-linked securities and cat bonds perform independent of economic data, enabling them to beat stock and bond markets. The performance of our recommended products (after fees) in the first half of the year ranged from -0.5% to +0.5%.”

He noted that the return in the first-half is lower than normally anticipated due to spread compression, but added that this could translate into “an additional performance opportunity”, especially if hurricane losses remain lower through this season.

“It remains crucial whether hurricanes make landfall and if so whether this is in the countryside or in a densely populated area,” Brill said.

But added that, from ILS allocations, “We expect a significant positive contribution in the second half of the year.”

A strong second half of 2022 from ILS investments is therefore being anticipated by VP Bank, catastrophe loss activity allowing, which means it is recommending the asset class to clients, while also cautioning them on the very real potential for losses should major catastrophes strike.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

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