Key Takeaways
- • Just over 1% of the 912 institutional pension investors surveyed by Mercer in its 2018 European Asset Allocation Report have an allocation to insurance-linked securities (ILS), per Artemis.bm.
- • The 12 pension plans with ILS allocations are all defined benefit schemes: 10 from the UK, 1 from Italy and 1 from the Netherlands.
- • The average ILS allocation among those investors is 3%, consistent with other surveys of insurance and reinsurance-linked investment allocations.
- • All ILS-allocating pension plans have total assets above EUR 250 million, and seven exceed EUR 2.5 billion, indicating that larger, more sophisticated schemes lead adoption.
- • Mercer's survey covered institutional investors with roughly EUR 1.1 trillion in total assets across 12 countries, and found continued movement away from equities toward diversifying alternatives.
Summary
A Mercer survey published in June 2018 found that only a small fraction of European pension investors allocate to insurance-linked securities (ILS) and reinsurance-linked investments, according to Artemis.bm. Mercer's 2018 European Asset Allocation Report surveyed 912 institutional pension fund investors across 12 countries, representing total assets under management of around EUR 1.1 trillion. Within the survey, ILS funds are classified under the hedge fund bracket, and just over 1% of respondents already hold an ILS allocation.
The average allocation among those investors is 3%, which Artemis noted is aligned with other industry surveys of insurance and reinsurance-linked allocations. Mercer provided Artemis with further detail on the investors behind the figures. The 12 pension plans with ILS exposure are all defined benefit schemes, with 10 based in the UK, one in Italy and one in the Netherlands. All have total assets above EUR 250 million, and seven hold more than EUR 2.5 billion, suggesting that larger, more sophisticated schemes are the main adopters. Mercer also identified four Swiss pension schemes with a hybrid structure that allocate to ILS; these were excluded from the chart because they are not defined benefit plans, and each has assets above EUR 100 million.
The survey reflects a broader trend in which European institutions are reducing equity exposure and seeking diversifying alternatives with lower correlation to financial markets. Mercer quoted the search for diversification as having encouraged investors to look beyond traditional equity and bond assets. In the UK, the decline in equity allocations among pension plans has been roughly matched by increased alternatives allocations, but uptake of ILS within that shift remains slow. Artemis framed the low penetration as evidence of a significant opportunity for ILS managers as the many pension funds not yet invested in the asset class develop into potential clients.
The average allocation among those investors is 3%, which Artemis noted is aligned with other industry surveys of insurance and reinsurance-linked allocations. Mercer provided Artemis with further detail on the investors behind the figures. The 12 pension plans with ILS exposure are all defined benefit schemes, with 10 based in the UK, one in Italy and one in the Netherlands. All have total assets above EUR 250 million, and seven hold more than EUR 2.5 billion, suggesting that larger, more sophisticated schemes are the main adopters. Mercer also identified four Swiss pension schemes with a hybrid structure that allocate to ILS; these were excluded from the chart because they are not defined benefit plans, and each has assets above EUR 100 million.
The survey reflects a broader trend in which European institutions are reducing equity exposure and seeking diversifying alternatives with lower correlation to financial markets. Mercer quoted the search for diversification as having encouraged investors to look beyond traditional equity and bond assets. In the UK, the decline in equity allocations among pension plans has been roughly matched by increased alternatives allocations, but uptake of ILS within that shift remains slow. Artemis framed the low penetration as evidence of a significant opportunity for ILS managers as the many pension funds not yet invested in the asset class develop into potential clients.
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