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50% of pension plans state getting trustees comfortable with the asset class biggest impediment to allocation

Over 1 in 5 pension plans are considering new investment into Insurance Linked Securities in 2017
50% of pension plans state getting trustees comfortable with the asset class biggest impediment to allocation

London: A recent survey of 100 institutional asset allocators carried out by independent publisher Clear Path Analysis, found that 22% stated they were very likely to start investing in insurance linked securities in the next 12 months.

Global market turbulence, macro-economic and geo-political events has meant that UK, European and US interest rates have stayed low, resulting in growing numbers of pension funds turning to alternative asset classes to source attractive yields, particularly those offering uncorrelated returns from equity and bond markets.

However, institutional investors, particularly pension plans, are still finding the asset class difficult to understand with 50% of plan representatives stating ‘getting trustees comfortable with the asset class’ was the biggest impediment they face to making allocations to the area.

Adam Beatty, Managing Director with Nephila Advisors commented in the survey report, titled Insurance Linked Securities – Asset Owner Insight, said: “It can be difficult for investors to discern true risk adjusted performance and whether a manager is delivering good value for the downside risk they are taking on”.

Considering the future of the market and the increasing role multi-asset fund managers could play, Beatty said: “We do feel that over time more of the investor community will find the asset class attractive and so we might expect to see some broadening out into the larger asset managers, perhaps adding it as part of a multi-asset portfolio of investments for their clients”.

Further findings from the survey included that:

  • 78% of pension plans stated further recommendations by own consultants was a key trigger to initial or further allocations, underlining the crucial role advisors continue to play in alternatives allocations
  • 64% of pension plans stated greater inclusion in multi-asset funds would prompt greater interest
  • 72% felt there wasn’t a need for more standalone ILS managers available to allocate too
  • Size and reputation of asset managers is a low priority amongst asset owners, scoring an average of 2 out of 5 in importance
  • Almost 80% of asset allocators expect 3% or less of their overall asset allocations in the next 12 months to be to ILS
  • However, for investors that are already in the market, 32% intend to allocate more than 3% of their overall allocations to ILS by the end of the next 12 months

The average of survey respondents answers, were that they expect 4 – 6% on their returns over the next 12 months, which is broadly similar to previous years and indicates a low level of expectation amongst investors that new ILS risks will enter the market, offering higher returns.

Niklaus Hilti, Head of Insurance Linked Strategies at Credit Suisse Insurance Linked Strategies offered an explanation as to why: “Market participants can buy reinsurance at a relatively low cost, so why should there be a push for innovation? Innovation occurs when there is some pain, which means it becomes very expensive to transfer risk”.

Hilti points to life risk as one area where greater innovation in risk packaging for capital markets could occur, commenting: “Life risk, in the long run, can only be profitable if investment returns are higher in the future than they are at the moment. This already creates a certain pressure on insurers to offset at least part of the risk that they hold.”


Notes to Editors

To obtain a full copy of the Clear Path Analysis survey on ‘Insurance Linked Securities – Asset Owner Insight’ and/or speak with one of the commentators please email: marketing@clearpathanalysis.com or call +44 (0)20 7688 8511 or click the following link:

www.clearpathanalysis.com/surveys/insurance-linked...

About Clear Path Analysis

Clear Path Analysis is an impartial, independent publisher of high quality reports on pressing industry issues written by a cross-section of experts in the financial services and investments sector. Clear Path Analysis has a unique position in the market place, curating content from end investors and buyers through written articles, surveys and presentations at events. Clear Path Analysis, established by Noel Hillmann in January 2010, is headquartered in London with an office in San Francisco. For further information, please visit www.clearpathanalysis.com.

Press Contacts:

Noel Hillmann, Julie Knowler

Phone: +44 (0)20 7688 8511; 0779 136 0226

Email: noelhillmann@clearpathanalysis.com; julieknowler@clearpathanalysis.com

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