Coca-Cola pension fund ILS allocation shrinks 9% to $330m in 2021

Global beverage and food giant the Coca Cola Company’s pension fund allocation to insurance-linked securities (ILS) shrank in 2021, dipping 9% which we expect is largely due to the impacts of natural catastrophe losses across the year.

The ILS investments of the Coca Cola pension fund is one of the pension funds investing in insurance-liked securities (ILS) that it is easier to track and the pensions allocations have fluctuated in recent years, with catastrophe loss activity one of the expected drivers.

The corporate pension fund of Coca-Cola Company has had an allocation in insurance-linked securities (ILS) for a number of years now.

At its peak, it equated to around 5% of the corporate pension plans assets, demonstrating the company’s appetite for reinsurance-linked investment exposure.

Coca Cola has called the ILS asset class attractive because it represents a diversified source of investment returns and Coca-Cola has been focused on the uncorrelated nature of ILS or reinsurance assets, as well as the fact they can be equity-like in their return streams.

Coca Cola’s U.S. pension fund has made allocations to a number of ILS funds, we understand. These included having allocated to London-based specialist ILS fund manager Securis Investment Partners, but we can’t be certain at this time who in ILS the pension remains invested with. We understand Coca Cola has had both catastrophe bond and private ILS fund allocations in its time.

The Coca-Cola pension’s allocation to insurance-linked securities (ILS) had been impacted by catastrophe losses in recent years.

Losses experienced by the ILS and reinsurance market in 2017 and 2018 triggered a shrinking of the ILS allocation over the next few years. We believe this may also be the case after 2021.

At the end of 2015 the ILS allocation had reached $544 million, but then grew to a new high of around $600 million invested in the ILS at the end of 2016.

The Coca Cola pension fund’s ILS allocation then shrank to $564 million at the end of 2017, which was likely driven by that year’s catastrophe losses.

The ILS allocation shrank faster in 2018, with the value of the allocation to ILS falling by around 30%, to end the year at just $403 million in size, likely on the continued creep from 2017 hurricanes, as well as the fresh 2018 loss activity.

2019 saw a further shrinkage, with Coca Cola reporting its pension fund’s ILS allocation 14% smaller at $346 million at the end of that year.

2020 then saw the ILS allocation return to growth, ending the year at $362 million, an increase of just under 5%.

We assumed that 2020 growth was driven by ILS market returns generated through the allocation, rather than any fresh investments having being made.

It feels like that may have reversed through 2021, as the Coca Cola pension’s ILS allocation shrank by 9% to $330 million at the end of last year.

As a result, the pension’s ILS fund allocation has fallen to roughly 3.7% of assets, down from the prior year’s 4.2%.

With the reinsurance rate environment much-improved for 2022, it will be interesting to see in a year’s time whether Coca Cola elects to deploy any more capital into the ILS market, which could offset the shrinking seen in recent years.

The Coca Cola Company pension is just one of the numerous pension fund and major ILS investors we track in our directories here.