Swiss ILS fund managers collaborating on ESG transparency

Artemis has learned that a group of Switzerland-based insurance-linked securities (ILS) investment fund managers have been collaborating to develop a data transparency proposal to help enhance environmental, social and governance (ESG) in the ILS market.

After what we understand to be a few months of work, an initial ESG data request file template has now been shared with reinsurance brokers and catastrophe bond or ILS broker-dealers, as the group of Swiss ILS fund managers begin to engage with the market on their proposal.

The ILS fund managers that have come together to press forwards on this environmental, social and governance (ESG) transparency and standards initiative are: Credit Suisse Insurance-Linked Strategies; LGT ILS Partners; Plenum Investments; Schroders Capital ILS; Solidum Partners; and Twelve Capital.

Between them, these ILS fund managers represent a reasonable percentage of the ILS marketplace, having in excess of $20 billion of ILS capital under management across the group.

We’re told that the group of Swiss ILS fund managers felt that, when it comes to ESG, data transparency is not where it needs to be across the insurance, reinsurance and retrocession market.

Look-through, so the visibility of what lies beneath, or embedded within, a transaction is a key concern and the group of ILS managers feel it has to improve to enable them to offer their investors a truly ESG appropriate fund strategy.

In particular, reinsurance and retrocession transactions that are further removed from the original risk are a concern, as managers do not ultimately know who they are providing protection to.

ILS fund managers are agreed globally that access to more data and transparency is going to be key, as the industry adopts ESG and seeks to develop specific funds that meet end-investors’ often stringent ESG requirements.

Hence the work this group has undertaken should benefit the entire ILS market, by bringing this subject to the fore and engaging with the broking community directly on it.

We’re told the ILS fund managers are keen to avoid any suggestion of green-washing in the insurance-linked securities (ILS) market, so feel that in order to call a strategy or investment ESG appropriate, the relevant look-through needs to be sufficient.

The idea is to help stimulate a drive towards better disclosure for the ILS market and its counterparties plus broking partners, and the group of ILS managers are said to be certain this industry-driven approach is the right way to move this topic forwards.

So far, the Swiss ILS fund managers have agreed on a data request file template, which defines what they really want from the market and this has been circulated to reinsurance brokers and ILS broker-dealers, with discussions now underway.

The process to adopt a standard form, such as this, is not expected to be a particularly quick one. The ILS fund managers recognise this could take some time, but we understand the desire is to start with something seen as a concrete proposal and more tangible, to fuel these important discussions on the ESG topic.

In order to achieve this, the ILS managers decided to keep the working group relatively small and concentrated on the local area, with the majority of the participants Zurich based, making for easy communication and convening of meetings, which we understand helped to deliver a more concrete output.

Once that clear and concrete proposal was developed, the data request template, the market was approached for its feedback, which is the current stage of the process, we understand.

By adopting an aligned approach, the ILS fund managers hope to show the industry something tangible that can be worked towards, to make portfolios of insurance and reinsurance risk more ESG appropriate and so enable managers to benefit from ESG investor appetite, plus cedents to benefit from the potential cost-of-capital efficiencies that truly ESP appropriate capital markets risk transfer could deliver.

We all saw how the first ESG appropriate catastrophe bonds priced, plus how ESG bonds in other markets price and it’s clear there could be benefits for ceding companies to providing a broader level of disclosure on what lies within their books of business, to help ILS fund managers assess their submissions on an ESG appropriate basis.

As institutional investors increasingly request ESG information, data and transparency around their investments, it is encouraging to see ILS fund managers responding, with a collaborative initiative that could make meaningful progress on helping ESG become more embedded into the ILS asset class.

ESG investing and the opportunities it presents are a growing focus for the insurance-linked securities (ILS) market. Read more of our insights on this topic here.