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Pimco plans $3bn-$5bn ILS investment within five years

Pimco plans to invest $3bn-$5bn in the ILS sector in the next three to five years, according to Rick Pagnani, head of the firm’s ILS business.

Speaking at the Trading Risk New York conference last week, he declined to comment on nearer-term projections for its ILS capacity but said he had had a positive reception from investors.

Pagnani explained that the new offering had the benefit of being at the “intersection” of Allianz and subsidiary Pimco which has $1.84tn of assets under management including $35bn in the alternative platform where its ILS offering sits.

“While this is a new initiative to Pimco it is far from a start-up, we have all the ingredients to hit the ground running,” he stated. He listed these advantages as including “instant scale” due to access to Allianz risk as well as fronting, leverage, risk management and infrastructure.

According to Pagnani the firm has spent recent months investigating the areas for potential growth.

One idea he shared was to allow Pimco investors to cross-collateralise or part-collateralise ILS investments with other assets, effectively adding an ILS overlay to an existing mandate.

“By doing that we can effect a pickup in returns for investors, a source of alpha… it is totally diversifying for that other asset class,” he stated.

In addition the unit is working with its commodities group to find ways that it can offer livecat market.

Turning to the ILS market overall, he said the feedback from his investor trips showed that the way the 2017 and 2018 losses had been handled was the problem as much as the losses themselves.

“Lack of transparency and timeliness of reporting has certainly left a mark on our industry from the credibility standpoint,” he explained.

He called on the industry to do a better job of getting to the right figures early on and making sure investors understand the mechanics of post-loss reality and what happens with trapped capital.

Lutece Re’s chief underwriting officer Julia Henderson said at the same conference that the ILS industry must work to improve levels of investor confidence.

According to Henderson, investors have a “big mistrust” of the asset class after two years of losses, loss creep and a major crisis of corporate governance.

She noted that it was “not a good enough answer” to blame modelling errors for the unexpected scale of 2017 and 2018 wildfire losses.

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