Saskatchewan Healthcare pension gets 26.4% return from ILS allocation in 2023

The Saskatchewan Healthcare Employees’ Pension Plan (SHEPP) saw it’s allocation to the insurance-linked securities (ILS) asset class via managers Aeolus Capital Management and Nephila Capital deliver an impressive 26.4% return in 2023.

Gains generated from the strong returns last year and fresh investments made have helped the Saskatchewan Healthcare Employees’ Pension Plan (SHEPP) grow its ILS fund holdings back almost to the level they reached at the end of the prior year.

The Saskatchewan Healthcare Employees’ Pension Plan (SHEPP) allocates to insurance-linked securities (ILS) through strategies managed by specialist asset managers Aeolus Capital Management and Nephila Capital.

The Saskatchewan Healthcare pension has been investing in ILS via collateralized reinsurance and retrocession strategies since at least 2018.

In that time, the pension has seen the value of its ILS asset class holdings fall and rise again, as catastrophes and hurricane impacts drove some losses, but 2023 has seen a significant recovery in value of its allocation for the investor.

By the end of 2023, the Saskatchewan pension reported over CA $182.8 million (US $138 million) in ILS investments, up from CA $123.1 million at the end of 2022.

During 2023, the pension benefited from the hardening of reinsurance rates and higher ILS yields, as its portfolio allocation to Aeolus and Nephila delivered a very impressive 26.4% return for the year.

Making up 1.8% of the Saskatchewan pension fund’s assets at December 31st 2023, the ILS allocation was the most positive, in performance terms for the year.

SHEPP pension reported, “These strategies provide diversifying income-oriented returns from insurers managing exposures to potential property losses from catastrophic weather events.”

“Opportunistic investments returned 26.4% in the year on the strength of attractive insurance-linked securities premiums.”

Notably, the pension also said of its ILS allocation that, “Measured against the total Fund benchmark, this provided 15.7% in value add.”

During 2023, SHEPP added over CA $46.5 million in fresh investments into ILS, while disposing of around CA $7.5 million.

But, also impressive was the almost CA $20.7 million in gains that the ILS portfolio delivered during the year for the Saskatchewan Healthcare Employees’ Pension Plan.

The SHEPP pension plan puts its ILS investments in the ‘opportunistic’ bucket of its overall portfolio, a segment that previously held other types of assets but by the end of 2023 was just the ILS fund allocations to Aeolus and Nephila.

While the ILS allocation reached 1.8% of the pensions overall CA $9.8 billion of assets, given the nature of opportunistic assets there is no minimum allocation size set, suggesting it could fluctuate over time.

But, notably, the upper-bounds for its opportunistic asset class allocations is 7% of the pension fund, suggesting there is plenty of room to grow in ILS as well.

The Saskatchewan Healthcare Employees’ Pension Plan (SHEPP) is just one of the numerous pension fund and major ILS investors we track in our directories here.