More data and transparency in the ILS market

In May 2024, SIGLO Capital Advisors published their comprehensive study of the Insurance Linked Securities (“ILS”) market, the “ILS Universe Overview” which, possibly for the first time ever, brought together ILS managers from across the Globe to share their views and data on ILS. This is great news for the market and a significant step forward towards a more transparent and robust ILS universe.

ILS is a fast growing but still relatively nascent asset class, which attracts only some, specialised investors. As such, there is still little knowledge about this market and publicly available data is rather scarce. Transparency and comparability are therefore crucial for further development of ILS as an appealing investment. The “ILS Universe Overview” gives useful insights to the ILS space and comes at the very right moment. As an ILS investor, we highly appreciate this initiative.

ILS is not a homogenous asset category. Although it is all about the reinsurance risk premium, there are various options to invest, such as different perils (e.g. wind or earthquake), different regions (e.g. Asia-Pacific, US or Europe) or high versus low risk investments. The data shared by SIGLO shows exactly that. For example, SIGLO analyses the contribution to the expected loss (“EL”) by various risk drivers and indicates that the participation in EL from US wind is ranging from 25% up until almost 80% between various funds (see figure 10). This is very insightful for the investors.

From our investor’s standpoint, we would like to see more fund managers providing such insights and extend their standard reporting with additional data, like what is shown in the article. Such data will undoubtedly help investors to better understand ILS and to increase their participation in the market.

About ILS
ILS provides attractive long-term risk-adjusted returns as well as an excellent diversification for a traditional pension fund investment portfolio and low correlation with other asset classes. After all, where a stock market crash could lead to a poor investment performance for most asset classes, it does not trigger a hurricane or earthquake to occur and therefore has no direct impact on the performance of ILS.

ILS also contributes to helping countries, people and businesses to deal with the effects of climate change and natural disasters. By providing capital to insurers and reinsurers, ILS helps to keep insurance for consumers against extreme events affordable and sustainable.

With over USD 100 bn in size, the ILS market has a significant contribution to overall reinsurance capital, and it is expected to grow further. Such growth will undoubtedly demand more of the in depts analysis, such as SIGLO’ study, which will contribute to the overall improvement of the ILS products and development of the robust market. This can only bring positive outcomes and increase investors’ confidence in that assets class.