Institutional investors shift towards ILS – Clear Path Analysis

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Senior industry figures are expecting more institutional investors to allocate to the ILS asset class following recent broker predictions that the catastrophe reinsurance capacity is expected to double and reach $100 billion in the next few years, the latest Clear Path Analysis research has showed.

The absence of yield in other asset classes is pulling ILS instruments towards mainstream investment tools, presenting new challenges for investment managers, the research also showed.

John Whiley, head of ILS Administration at SS&C GlobeOp gives the issue further context, “Pension assets are worth around $30 trillion globally, hedge fund assets are expected to top US$3 trillion in 2014, compared with the traditional reinsurance limit of $300 billion. As pension investors are attracted to potential ILS returns they are likely to deploy capital that has been sitting on the side lines.”

This appears to be a trend seen across the industry, Dr Urs Ramseier, Chief Investment officer at Twelve Capital says “We’ve seen an increasing number of pension funds tracking and analysing the risk and return of the ILS investments and many of these may well invest in the next 2-3 years”

On average, ILS investments represent 1-3% of pension fund assets but despite this relatively small allocation when put in context it mirrors levels of other more traditional alternatives such as gold or real estate.

This is one of several insights from the Clear Path Analysis ‘Insurance-Linked Securities for Institutional Investors 2014′ report, which discusses the key issues and opportunities involved with ILS investing and their place within an investment strategy, for both new and existing investors.

Over the past 12 years, the insurance-linked securities market has created an industry with over $15bn trading between capital market investors. The first quarter of 2014 saw near record issuance for catastrophe bonds one of the more commonly known forms of the alternative capital market of $1.41bn compared with $0.67bn in 2013.

Click here to read full reportClearpath Analysis ILS 2014

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