PGGM / PFZW ILS portfolio delivered 18.9% return (USD) in 2023 – Artemis.bm

The giant more than $9 billion portfolio of insurance-linked securities (ILS) and reinsurance investments managed by PGGM, the Dutch pension investment manager that allocates the largest amount to the insurance-linked securities (ILS) market on behalf of end-client the Dutch pension PFZW, delivered a record 18.9% return in 2023.

Riding on the higher premiums being paid in reinsurance and higher spreads of catastrophe bonds, the PGGM / PFZW ILS portfolio benefited significantly, with the ILS and reinsurance mandate one of the best performing segments for the overall PFZW pension portfolio, it seems.

It is by far the best ILS portfolio performance that pension PFZW has experienced and, compared to recent years, a significant elevation of the return from the pensions’ large reinsurance investments portfolio.

The 18.9% return is in USD, while the publicly reported return is Euro hedged and cited as 16.5% for 2023, with 4.2% coming through in the fourth-quarter, 5.1% in Q3, 3.3% in Q2 and 2.9% in Q1 of 2023.

The PFZW listed equity allocation made the pension fund an 18.1% Euro hedged return for 2023, but that is the only one of the major asset class categories to beat ILS last year.

In earnings generation terms, a 16.5% return on the EUR 8.141 billion portfolio of ILS and reinsurance that PGGM was managing at the start of 2023 would amount to EUR 1.34 billion, which is a stunning figure.

Of course, some or even most of this will have been reinvested, but it’s likely PGGM and its client PFZW will have taken some of these earnings out, given the allocation restrictions that large pensions work to.

In 2023, some income was taken from the Vermeer Re rated reinsurance joint-venture and it’s likely more has been taken from other ILS allocations, delivering immediate benefits to PFZW’s pension funding.

For comparison, 2022 saw the ILS portfolio returning -0.9%, again Euro hedged. However, we assume some of that came back through 2023 in terms of price and valuation recoveries related to hurricane Ian.

In 2021, the ILS portfolio was also down -0.9% in Euros, in 2020 it was positive 3.7%, in 2019 up by 3.5%, in 2018 down -3.1%, and in 2017 unsurprisingly given the catastrophe loss activity down -13.3%.

The gains made in 2023 have made up for much, if not all, of the catastrophe loss-hit performance years, which demonstrates the importance of taking a long-term, multi-year view to investing in ILS and reinsurance.

With such a broad platform of reinsurance-linked return access-points now, the PGGM / PFZW ILS portfolio should continue to deliver, especially while attachments and terms remain so much better than prior years.

It will be interesting to see how large investors like this react, should softening persist. There is a good chance we begin to see some capital withdrawal, as the majority of large investors in ILS have no appetite to return to the performance previously seen.

PGGM remains the largest single investor listed in our directory of pension funds and sovereign wealth funds investing in ILS and reinsurance.