AMSTERDAM (Reuters) - PGGM, the Dutch pension fund manager overseeing assets of nearly 200 billion euros ($248 billion), is looking to increase its allocation to insurance-linked securities (ILS), or disaster reinsurance, despite a difficult year in 2017.
Evelien Takken, PGGM’s senior investment manager for ILS, told Reuters in an interview she would like to bump up exposure from a little less than 2 percent of assets under management to 2.5 percent, an increase of around 1.2 billion euros.
PFZW, the Dutch healthcare industry pension fund that is PGGM’s main client, reported a loss of around 2 percent on its ILS investments, ending the year with 3.84 billion [euros?] in assets. The fund said the heavy hurricane season was the main reason for the annual loss.
But Takken said that the asset class has returned 7 percent annually for PGGM, including last year’s figures, and now is a reasonable time to increase allocations.
After a year with more than usual natural disasters, such as 2017, insurers’ capital positions are somewhat weakened. They need to guard against another poor year, and they are willing to offer better premiums for reinsurance. Pension funds, which have capital and are on the hunt for good returns, are well-placed to fill the gap.
“For next year there’s no increased hurricane activity expected, (but)...you’re rewarded with a better premium for similar risks,” she said.
In various categories of the ILS market, yields have increased in a range from less than 5 percent to almost 20 percent.
She said the company does not have a specific target date to reach 2.5 percent of assets allocated to ILS.
However, the “year after an event [such as a major hurricane] is a good moment to start.”
Reporting by Toby Sterling, editing by Larry King