Insurance Linked Investments At PGGM

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Insurance Linked Investments ("ILI") focus on taking over natural catastrophe risk from (re)insurers through catastrophe bonds (‘cat bonds’) and private contracts, implemented via partnerships with (re)insurers or ILS managers.  

The portfolio grew gradually from €500 million to €8.4 billion. We have focused on building strategic partnerships with top tier (re)insurance companies and ILS managers to preserve access to risk and a rigorous selection of such risk.

Why invest in ILI?

The rationale for investing in ILI is, first and foremost, because it provides attractive long-term risk-adjusted returns. In addition, while (re)insurers transfer these risks to mitigate concentration risk, ILI provides an excellent diversification for a traditional pension fund investment portfolio. 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 ILI. Finally, ILI fits within PGGM’s and PFZW’s broader ambition to contribute to a sustainable financial system and a valuable future. By providing capital to insurers and reinsurers, PFZW helps to keep insurance for consumers against extreme events affordable.

In addition, ILI contributes to helping countries, people and businesses to deal with the effects of climate change and natural disasters, which are becoming more and more frequent because of the climate change. By investing in ILI, we help the insurance companies to increase their capacity to insure more homes and business and thanks to that more funds become available to recover from and to increase resilience against the natural disasters. ILI has therefore been classified as a Sustainable Development Investment, based on the United Nation’s classification for Sustainable Development Goals.

Our core beliefs

PFZW has given PGGM a mandate to invest in ILI focused on natural catastrophe risk. PGGM implements this mandate based on a philosophy consisting of six interrelated core investment principles:

Our beliefs

Long Term Strategic Relations

PGGM believes that the best way to access natural catastrophe risk is by building long-term strategic relationships with established industry leaders, such as ILS managers and (re)insurance companies. Together with these partners, we set up dedicated investment vehicles that allow us to control the structure and risk profile of the investments as much as possible. In addition, we look for a strong alignment of interest and we value responsiveness, transparency and an open mind towards innovative ideas and initiatives in our partners.

Efficient implementation

We strive for an efficient implementation of our investments as we believe this leads to higher returns. We define 'efficient' as limiting costs, optimising the capital to be held, limiting exposure to risks other than natural disasters and, finally, limiting the contamination risks through the use of effective and segregated structures.

Adaptability

As the role of third-party capital is evolving, the ILI team must pro-actively adapt to meet the changing demands of the (re)insurance industry in order to remain an attractive and reliable partner.

Our investment allocation strategy focuses on peak perils

Our investment allocation strategy focuses on peak perils, as we believe that the (re)insurance sector cannot diversify those sufficiently, creating superior return opportunities for PFZW. Within these perils, we believe a balanced portfolio composition across geography, risk layers and triggers can be achieved.

Quality of our people together with PFZW’s long term and solid commitment

We believe that the quality of our people together with PFZW’s long-term and solid commitment to ILI form the basis of our success. Through a thorough understanding of the (re)insurance market and the solid and long-term capital base that PFZW offers, we believe we can become a long-term reliable partner for the (re)insurance industry without forgetting our roots. For this reason, we speak our own voice on the topics that matter to us. We continue to develop and strengthen our strategy and implementation by means of consistency and innovation.

Sustainability

Sustainability in general, and climate change considerations in particular, are important and real. Therefore, we actively engage with our external partners to better understand, and gain visibility on the impact of, climate change on perils. With that knowledge, we mitigate the risks in the ILI portfolio which are exacerbated by climate change.

Questions?

For questions please, contact Eveline Takken-Somers.

Eveline Takken-Somers Head of Insurance Linked Investments