SBAI publishes responsible investment guidance for ILS funds

The Standards Board for Alternative Investments (SBAI) has published a new guidance document that covers responsible investment within the insurance-linked securities (ILS) fund management industry.

The SBAI had already ramped up its focus on environmental, social and governance (ESG) alongside responsible investing within various asset management segments.

This included the publication of toolkits to help bring some standardisation around adoption of best practices and to help allocators understand what’s required, from themselves, funds and managers.

A new toolkit was anticipated to discuss the practical implementation of responsible investment across the insurance-linked strategy and ILS funds industry.

Now, the SBAI has published that guidance on Responsible Investment in Insurance Linked Strategy Funds, which can be found in the SBAI Responsible Investment Toolbox.

Responsible investment approaches are “in their infancy and often do not fit neatly into regulatory or industry-based reporting frameworks,” within the ILS fund management space, the SBAI explained.

Integration of responsible investment and dedicated approaches can therefore vary, while the application of strategies need careful thought and discussions between asset managers and allocators, the SBAI believes.

Lorenzo Volpi, Managing Partner at Leadenhall Capital Partners commented, “Robust and fair business processes are important for the asset management community as a whole and for ILS managers specifically.

“The SBAI ILS Working Group has collaborated to produce an effective guide for asset managers to review and enhance their side-pocketing processes as well as important questions that allocators to ILS funds should be asking of their external asset managers.”

The SBAI’s dedicated ILS Working Group is made up of more than 50 representatives from both institutional investors and ILS asset managers, who come together to contribute to delivery of best practice information and guidance, with a view to encouraging standards to be maintained in the ILS investments sector.

This guidance is not prescriptive in how responsible investment should be applied, the SBAI said but provides information on the disclosures asset managers should make and questions that institutional investors should ask of their managers.

The ILS sub-stream of the working group will later this year also focus on the questions that asset managers can ask of reinsurance cedents and ILS transaction sponsors, in order to understand their responsible investment related policies.

Alaina Cubbon, Vice President Portfolio Management at Elementum (Bermuda) Limited added, “The SBAI Responsible Investment Working Group is a great neutral space for both asset managers and institutional investors to discuss industry challenges and arrive at practical solutions. This memo is the result of this collaboration and will aid the ILS industry as focus on RI is increasing.”

ESG investment trends and investor appetite for responsible investment focused asset classes, are considered a significant opportunity for the insurance-linked securities (ILS) market and reinsurance investments in general.

The SBAI’s guidance, derived from leading asset managers and allocators with a focus on the sector through the ILS Working Group, will provide useful direction to market participants and interested end-investors that are exploring the ILS fund sector.

Ultimately, ESG investing and responsible investment practices should help to propel the ILS asset class forwards, as it looks to embrace and become more attractive to ESG allocators, while continuing to provide its core product of reinsurance capital, with ESG criteria perhaps set to become increasingly significant inputs to cedent and sponsor interactions and even pricing in time.