Rick Pagnani of Mt. Logan Re, Ltd., a sponsor at the marcus evans European Pensions & Investments Summit 2016, on insurance linked securities.
Interview with: Rick Pagnani, Chief Executive Officer, Mt. Logan Re, Ltd.
How to Invest in Insurance Linked Securities - Rick Pagnani, Chief Executive Officer, Mt. Logan Re, Ltd.
1. Interview with: Rick Pagnani, Chief
Executive Officer, Mt. Logan Re,
Ltd.
“Due to their independence from
financial markets, property exposed
insurance linked securities offer a
unique generally non-correlated
investment supplement to any fixed
income, equity based or alternative
asset strategy,” says Rick Pagnani,
Chief Executive Officer, Mt. Logan Re,
Ltd. “In addition to their inherent
diversification benefits, certain
investment managers in the space, such
as Mt. Logan Re, take it to another level
and generate Alpha in addition to the
intrinsic Beta of the asset class,” he
explains.
Mt. Logan Re, Ltd. is a sponsor
company at the marcus evans
European Pensions & Investments
S ummit 20 16 , in Mo ntr eux ,
Switzerland, 23 - 25 May.
What is the characteristic risk-
reward profile of insurance linked
securities?
Returns vary in proportion to the
underlying exposure and the variability
of potential losses associated with each
instrument. Risk-adjusted returns also
vary in time depending on market cycles
and changes in the amount of capital
allocated to the class.
How do they compare with other
asset classes?
Currently, the spreads on Mt. Logan Re
investment returns are attractive
relative to risk being borne in other
asset classes. Market opportunities due
to contraction and expansion of capital
in the insurance and reinsurance space
will alter these spreads.
What is the best way of investing in
insurance linked securities?
The two most common methods of
investing in this class are through the
purchase of performance related
catastrophe bonds and preferred shares.
What should pension fund CIOs
take into account when making
their decisions?
If a CIO values immediate liquidity over
returns and diversification, then cat
bonds are a suitable instrument. These
instruments are not scalable as there
are limited offerings traded in the
market. If less liquidity is acceptable to
a CIO, then quality returns from a
diversified reinsurance portfolio and
superior investment manager can be
achieved through the purchase of a
linked investment such as preferred
shares offered from the segregated
insurance accounts at Mt. Logan Re,
Ltd.
What are some of the risks of
investing in this space? How can
they be mitigated?
The paramount risk is that of supporting
a poor quality underlying reinsurance
portfolio.
Ensure your investment manager has
exceptional access to a truly diversified
portfolio of underlying reinsurance
business, and not simply the lowest
priced provider of bespoke collateralised
reinsurance transactions.
What trends should pension fund
directors plan for?
While currently below their historical
peak, the returns offered by the best
investment managers are attractive.
These returns will vary over time and
are likely to increase from their current
levels in the future. In addition, the
market is experiencing strong growth in
terms of the volume and number of
products offered including the types of
underlying risks which provides
opportunities for investors to benefit
from this growth.
What strategies should they
consider?
Pension fund directors should consider a
one to five percent allocation to
insurance linked securities with a three
to eight year time horizon. It is
imperative that they establish
relationships with the best managers in
terms of portfolio performance and
ongoing access to business throughout
the reinsurance cycle. When the market
turns, any established relationships will
become more valuable. Investment
managers in the insurance linked
security space are not looking for
hundreds of relationships, but rather
generally just a small number of
substantive mandates. After the market
improves, new relationships in this
space will develop, but they will take
time to onboard and service appropri-
ately.
Therefore, it is highly advisable to
partner with an investment manager
that can also provide a consistent suite
of underlying insurance and reinsurance
risks over the entire market cycle.
When the
market turns,
any established
relationships
will become
more valuable
How to Invest in
Insurance Linked Securities
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About the European Pensions & Investments Summit 2016
The 16th annual European Pensions & Investments Summit is the ultimate meeting
point, bringing elite buyers and sellers together. The Summit offers regional pension
investors and international fund managers and consultants an intimate environment
for focused discussion of the key new drivers shaping institutional asset allocations.
Taking place at the Fairmont Le Montreux Palace, Montreux, Switzerland, 23 - 25
May 2016, the Summit includes presentations on asset allocation, capturing
alternative investment opportunities, portfolio optimisation and pension plan
modernisation.
www.epi-summit.com
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About Mt. Logan Re, Ltd.
Mt. Logan Re, Ltd. is the securitisation vehicle for the Everest Re Group (NYSE: RE), one of the oldest and largest global (re)
insurance groups in the world. Mt. Logan Re is a segregated accounts insurance company domiciled in Bermuda and has been in
operation for nearly three years in the insurance-linked security space.
Mt. Logan Re offers five series conducting (re)insurance business: three are optimised global catastrophe portfolios (low, medium,
and high risk/return), as well as two series which share on a para pissu basis with Everest Re. The securities offered are non-
cumulative preferred shares issued out of distinct and separate segregated accounts, with dividends of annual earnings. There are
semi-annual redemptions after one year lock-up, subject to other terms and conditions contained within the offering memorandum.
www.loganre.bm
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