Institutional investors increasingly confident about ILS
Institutional asset owners are increasingly confident in allocating to insurance-linked securities (ILS) and would remain invested even after a major hurricane, according to a recent survey of 100 institutional asset allocators.
The results of the Insurance Linked Securities – Asset Owner Insights survey carried out by Clear Path Analysis come on the back of the most active hurricane season since 1932 that saw three category 4 or 5 hurricanes make landfall in mainland USA and the US territory of Puerto Rico. The 2017 season ended an 11-year run without a major hurricane making landfall in a US state.
Despite US weather-related risk compiling the bulk of surveyed institutional investors allocations (84 percent of total), 80 percent of respondents stated they would at least remain invested in the asset class with 37 percent, stating they may look to increase allocations in 2018. With insurance risk carriers expected to offer higher returns on re-insured US weather risk in 2018 to capital market investors, many pension plans and other asset owners appear savvy to the opportunities and are sticking by ILS in the hope of benefitting.
“One should take a longer-term perspective when allocating to the asset class and be willing to tolerate a certain degree of volatility as long as it is within the projected margins that were indicated when they first made their allocation,” said Dirk Lohmann, chairman and managing partner, Secquaero Advisors.
Reflecting on the fact that lots of data now exists on the nature and potential destructiveness of hurricanes emanating in the Caribbean, he added: “It is important for everyone to understand that if you stick to risks that have good data and modelling you can get a good verification of the price of the risk transfer.”
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