Nat-cat strategies will prove value: Leadenhall

The Covid-19 crisis will bring challenges for the ILS market, but overall it should be more positive than negative for the asset class, Leadenhall Capital Partners CEO Luca Albertini told Trading Risk.

"This is the basis for a great pitch," he said, pointing out that renewals should bring stronger rate increases as the market reprices, while present ILS valuations are losing very little ground relative to other asset classes and have not taken a meaningful mark-to-market hit.

"I would be surprised if we're not one of the best-performing asset classes by year end," he said, assuming no major catastrophe activity occurs.

Pure natural catastrophe ILS strategies will prove their value during the crisis, though other specialty strategies could face more of an impact, he suggested. Areas such as contingency, trade credit and D&O insurance are likely hotspots for insurance claims as a result of the pandemic.

The ILS market had already assumed that some repricing was on its way at the June renewals and rates could now increase further if reinsurance capital lost due to investment losses in the first half of 2020 alters the balance between supply and demand.

However, as investors across the globe have sought to free up cash during the pandemic panic, Albertini said competing interests could lead to a temporary issue in the ILS market if investors decide to redeem.

"Sometimes you go after your best assets [to sell]," he said, adding that if this proves to be the case it would be history repeating itself from the 2008 financial crisis, when hedge funds sold cat bonds as they had held their value.

But, on the other hand, performance reports should show investors the core reason to stay in the asset class.

"In times like this the value of diversification proves itself," Albertini said.

As Trading Risk has previously noted, there has been an uptick in ILS bidlists in the past week, but Albertini agreed with reports that pressure to sell appeared relatively contained.

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