NEW YORK, March 8, 2012 /PRNewswire/ -- Since 2008, global financial markets have been characterized by increasing volatility and unexpected rising correlations among asset classes. As a result, institutional investors have been challenged with finding uncorrelated returns in a low-yield environment.
In a new white paper from Credit Suisse's Asset Management division – "Insurance Linked Strategies: Defining the Opportunity in Run-Off Portfolios" – Brad Huntington and John Williams, co-founders of ILS Investment Management, a sub-adviser of CSAM LLC, present their views on a growing alternative asset class—Insurance Linked Strategies (ILS)—and how they can provide a solution to investors' challenges.
In the white paper, ILS Investment Management and Credit Suisse's Asset Management division provide a brief history of the asset class, how it has evolved over time and what they believe are the primary drivers of growth going forward. Additionally, they identify two areas within the ILS space that may present unique opportunities and investor benefits: the property and casualty (P&C) market and legacy portfolios.
According to the white paper, the P&C sector may potentially provide a source of uncorrelated returns due to the following characteristics:
It is a large, global and diversified industry—the global P&C insurance market generates over $1.8 trillion of premiums each year.
There are significant barriers to entry in the P&C insurance market including significant capital requirements, complex legal and regulatory systems, product complexity and relatively low levels of product standardization.
This relatively inefficient and fragmented market is constantly evolving at different speeds and with different characteristics in separate jurisdictions. However, the main themes are constant - increased regulation, greater capital adequacy requirements and better investor transparency which can create opportunities for profits.
In addition, ILS Investment Management believes there is potential to generate alpha from insurers' and reinsurers' legacy policies.
Although still considered a niche market within the broader financial markets, ILS strategies have expanded in recent years to offer a broad range of opportunities for investors. While many investors recognize their correlation benefits and consistent returns, the white paper presents the view that the ILS market will continue to grow, supported by new regulatory requirements and changing demographics.
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