With inflation rates the highest they’ve been in four decades and rising the market is volatile for any investor in 2023. Whilst many are playing it safe and waiting for an eye in the storm, others are seeking to harness this turbulence. According to Chantal Berendsen, Senior Analyst, Hedge Fund IDD, Albourne Partners, one of the main areas investors are flocking to is the Insurance Linked Securities (ILS) market – which for some is exactly the right are of investment.
“People keep hearing that the market is interesting, but they want
to know why, how, and what that means exactly.”
Berendsen was speaking at the ‘Risk Mitigation with Insurance Linked Securities: 2023 Outlook for Institutional Investors’ roundtable, hosted by Clear Path Analysis, in association with Tangency Capital, which has just been released as a report. In it, ILS experts from Risk Management Solutions (RMS), Egan-Jones Ratings Agency, and Columbia Threadneedle Investments joined her in discussing the current market desire for information about, and ventures into, ILS.
“Day to day we are getting a lot of calls from clients and institutional investors who are asking us what is going on in the market,” said Berendsen, who added that she was often asked for her perspective on the pros and cons of the market. “People keep hearing that the market is interesting, but they want to know why, how, and what that means exactly.”
Now, more than ever, investors are interested in the different strategies available and want to better understand why certain strategies perform well whilst others don’t, she explained. Clients were also asking about new investment opportunities forward-looking performance predictions, which is “hard to say with certainty”, Berendsen noted
This trend has been widely observed for insurance investment teams in 2023. However, some investors are still hesitant. Earlier this year, Ratings agency AM Best said that ILS managers are adjusting to make their offerings more palatable to cautious investors.
Berendsen said that the investors interested in ILS generally fall into two camps: the first is comprised of those who haven’t been invested recently but are hearing about a “good opportunity and want to make an opportunistic play”.
“Some aren’t interested in hearing about ILS, which makes sense when you
consider that they were hit by losses they weren’t expecting.”
The second camp, she said, is comprised of those who have been “knocked around a bit by the losses over the last five-to-six years and haven’t seen the benefit coming out of their investment”. This group is slightly more cautious, taking the opportunity to improve their portfolio, which is “more of a long-term play”, she said. Unexpected losses
When asked whether those in the second camp truly have a continued appetite, Berendsen said that some genuinely did – whilst for others, appetite was dwindling. For example, she added that “some aren’t interested in hearing any more about ILS, which makes sense when you consider that they were in it for large hurricanes and earthquakes but then were hit by severe wildfires, convective storms, flooding, Covid-19, and other factors – surprise losses they weren’t expecting.”
The biggest issue, reiterated all the panellists, was that these losses were so unexpected. More education was necessary, Berendsen said, and there are investors doing the work to better understand this niche market, with interest expected to increase in 2024.
