ILS investors favour a more diversified and opportunistic approach: Hudson

Investors are increasingly considering a more diversified approach to insurance-linked securities (ILS) and have resumed activity following a brief pause when COVID-19 hit, Matthew Berdoff, managing director and head of investor relations at Hudson Structured Capital Management (HSCM), told Intelligent Insurer.

“We have now had three active storm seasons in a row, and 2020 is shaping up to be a potentially active one as well. We have seen some investors start to think more strategically about what it means to invest in insurance and whether it’s more attractive over time, to take a more diversified and opportunistic approach to insurance linked investing,” Berdoff said.

“I spend a lot of time speaking with clients about how property cat is a piece of ILS but certainly not the whole pie.”

He added that as capital markets expand into different areas of alternative risk transfer and across lines of business, investors are coming to understand the value of the approach offered by HSCM.

Three-phase reaction
Looking back over the first half of 2020, Berdoff said that the investor reaction to COVID-19 went through three phases.

“Initially, in March and April, our institutional investors put their pencils down,” he said.

“They didn’t cancel work, they didn’t withdraw investments for most it was simply a matter of understanding what was going on.

“In April/May/June those who were able to move opportunistically and had cash at hand certainly did: they moved quickly in defined pockets of opportunity, which didn’t necessarily mean long-term strategic fund investments; a lot of people were looking to invest in markets that allowed them to take advantage of dislocated or distressed opportunities.

“The third phase we saw was focused on establishing how to resume work in a new world order where you can’t fly to Bermuda or do on-site manager diligence.

“That is probably still evolving and some of the larger institutions that may be less nimble are still figuring that out, but I’ve been impressed with their ability to adapt.”

While COVID-19 has ushered in some lasting changes to the way people conduct business, he anticipates face-to-face meetings will remain important in his sector.

“There will still be very much an aspect of going on site in Bermuda for investors in the space, particularly for first-time investors,” he said.

Looking ahead, Berdoff expects an exciting 2021, with the sector being influenced by further diversification, another potentially active storm season and ongoing COVID-19 business interruption issues.

“From an allocator’s perspective, we believe there will be careful consideration not just of timing, but also of who you are choosing to steward your capital that has never been more important.

“We’re excited. It’s going to take a lot of work, and that’s what we’re here for,” he concluded.