Leadenhall earns seat with the big boys

Funds managed by Leadenhall Capital Partners have enjoyed further growth in 2017 and it is now managing more than $4.2 billion of assets, almost $1 billion more than 12 months ago, thanks in part to the launch of two new funds and further growth in its existing funds.

Luca Albertini, chief executive, Leadenhall Capital Partners told Monte Carlo Today that interest in the insurance-linked securities (ILS) asset class has reached the point that Leadenhall, which is an independently managed joint venture with re/insurance firm MS Amlin, is turning money away in some instances, preferring to ensure investors are planning long term and a disciplined approach is maintained. Leadenhall’s funds are split almost equally between life and non-life.

“There has been sustained interest in the ILS asset class and many investors who have been doing due diligence for a period of time are now wanting to put their money to work,” Albertini said. “In some instances, we have turned money down in favour of a disciplined approach. But we have a healthy mix of existing investors committing more and new investors showing an interest in this space.”

Albertini said that size is becoming increasingly relevant for funds, with buyers preferring to deal with players which have a significant amount of capacity potentially available. This is a departure from the early days of many funds when they could be more nimble and reactive. But he explained that many buyers now view funds as being on an equal footing with reinsurers in the way they manage their panels.

“We are moving from a phase of being nimble to being able to remain at the table with the top reinsurers. For that, you need size to remain relevant,” he said.

“Many buyers are reducing their reinsurance panels significantly; it can be expensive to keep so many counterparties. They are increasingly using collateralised coverage via funds like ours to fill specific layers of a programme. But they need to see you have scale and the capacity they require.”

Albertini said the sustained interest in the sector by investors stems from its long-term stability. Many of the appeals of the ILS sector, such as its diversification as an asset class and the premium ILS investments offer compared with similarly rated bonds in other asset classes, have not changed.

“The fact that there has been no change is also significant—investors like that stability,” Albertini said. “The longer the market has been stable, the more pension funds are willing to invest.”

In addition to this, he says, some very targeted marketing activities have driven interest in the ILS sector from certain investor bases. Leadenhall has spent a lot of time educating investors in South Korea, which has led to more investors from that country entering the market.

From an issuer’s perspective, Albertini believes that buyers increasingly value the diversification this form of risk transfer offers—something proved by the record-breaking ILS issuance levels of 2017 so far.

“Over many years, buyers have accepted that cat bonds are one tool they must have in their programme. It offers a true alternative source of capital and it is fully collateralised. They are also increasingly comfortable the capacity will not disappear after a big loss.

“The pricing also exists on a separate cycle to reinsurance and we are seeing some buyers leverage this difference to their advantage as well.”

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