ILS fund managers report growing investor interest: KBW

Insurance-linked securities (ILS) fund managers are beginning to report growing interest from institutional investors, analysts from KBW reported from a Bermuda visit this week.

Analysts from Keefe, Bruyette and Woods ventured to Bermuda in recent days, to take the temperature of the reinsurance market as the mid-year renewals near their final stages.

During the visit the analysts also met with ILS fund managers located on the island and found that while capital is not pouring back in, there are positive signals from some investors, including pension funds and endowments.

The analysts say that the “consensus” remains that capital is not flooding back into the market, aside from in the more liquid and better-performing in recent years catastrophe bonds, there are reports that interest is returning.

“Several managers reported some interest from Canadian pension and other endowment funds, predominantly (we think) from new investors unaffected by poor 2017-2022 results,” the analysts stated.

They cited alternative reinsurance capital as “modestly- rebounding” but here they are largely referring the fund-raising success seen in the cat bond market.

However, on the reinsurance side, “most executives don’t expect capital to flood back into the industry, reflecting frustration with ILS managers’ recent underwriting performance,” the KBW analyst team wrote.

With investors still said to be waiting to see a year of better performance, as well as how firmer pricing and tighter terms affect portfolio performance.

This wait-and-see approach that some investors are clearly taking at this time, alongside “pension funds’ typically slow investment process should delay capital inflows – if any – until 2024 or 2025,” KBW’s analysts explained.

However, the fact some ILS fund managers are reporting new interest from large institutional investors, such as pension funds and endowments, is a more positive outlook for the market’s prospects of bringing in new capital to collateralized reinsurance and retrocession strategies.

It also aligns with the in-bound interest we are seeing from larger investors, with a number now looking closely at opportunities to invest in the ILS market for 2024 and beyond.