AP2, or Andra AP-fonden, a Swedish state pension fund that is likely one of the largest in Europe at SEK 459 billion beneath administration, noticed its insurance-linked securities (ILS) allocation rise in worth to round US $1.1 billion by the tip of 2024, with the ILS asset class exceeding its long-term return expectations final 12 months.
AP2 has been allocating to disaster bonds and ILS in personal reinsurance kind since at the least 2012 and its allocation has been rising in worth over-time, as returns compound.
On the finish of 2023, the AP2 ILS allocation stood at across the US $920 million mark and the pension fund had expanded its allocation that 12 months, to capitalise on rising reinsurance premiums and cat bond spreads after hurricane Ian.
Now, on the December thirty first 2024 valuation date, AP2’s ILS portfolio is valued at SEK 12 billion, which transformed to roughly US $1.1 billion on the time.
AP2 mentioned that it invests in insurance-related belongings for his or her diversification advantages, in delivering non-correlated returns.
AP2 mentioned on 2024’s efficiency for its ILS allocation, “The ILS market benefitted in the course of the 12 months from a continued excessive risk-free price mixed with excessive unfold ranges, which emerged because of Hurricane Ian in Florida in September 2022. No main insurance coverage occasions that would have had a unfavourable affect on the portfolio occurred in the course of the previous 12 months.”
Including on the efficiency of its ILS investments, that it, “exceeded the Fund’s long-term return expectations in native forex.”
Curiously, AP2 is among the many pension funds which have been working to cut back exterior asset supervisor charges, preferring to handle belongings in home the place it may possibly and shifting to giant co-investments as nicely.
However, the place it does nonetheless pay charges to exterior asset managers, AP2 mentioned that on the finish of 2024, “externally managed capital (which determines the extent of the administration charges) now solely includes investments in different threat premiums, particularly funds that specialize in premiums for reinsuring insurance coverage corporations.”
Which suggests the pension fund sees the worth in exterior asset managers within the ILS house, the place specialist threat modelling and underwriting experience is crucial to portfolio building.
On the final portfolio disclosure, AP2 was allocating to a CS Iris Credit score Suisse fund, the Elementum Zephyrus disaster bond fund, and a variety of vintages of the GAM FCM cat bond fund.
