SPF, the €13.3bn railways pension fund, has said it wants to start investing in reinsurance bonds for natural disasters.
An SPF spokesman, who could not yet provide details of the planned allocation, said: “Currently, we are waiting for the moment of a good risk/return ratio.”
On its website, the pension fund says it considers catastrophe bonds as a means of achieving relatively high returns against an acceptable risk.
“The chances that a specific disaster will occur are very low, indeed,” it says. “In addition, we will limit our investments and spread the risk across different disasters in different areas.”
According to the Spoorwegpensioenfonds, re-insurance bonds are among the few investment classes that are not correlated with the economy, and therefore useful for diversification, as well as stabilising the economy.
SPF also emphasises that the planned investment is not meant to take advantage of other people’s problems.
“On the contrary, we help to ensure an insurer is able to pay out in the event of a disaster,” it says.
Last April, SPF’s coverage ratio was 122.3%.
The €143bn asset manager PGGM has been investing in reinsurance bonds since 2006 and currently manages a €1.1bn portfolio, chiefly for healthcare scheme PGGM, which had a 1.3% stake last year.
A PGGM spokesman said the combined portfolio of reinsurance bonds and private contracts with insurers returned 9.6% and 9.4%, respectively, over 2012-13.
APG, the €344bn asset manager for the large civil service scheme ABP, started investing in catastrophe bonds in 2003 and has accrued a portfolio of “hundreds of millions of euros”, its spokesman said.
Although he declined to provide additional details, he made clear the investments had “served APG well”, adding that the asset class was a proper diversification of its entire investment portfolio.
By investing in catastrophe bonds, an investor participates in an insurer’s risk – against a compensation from the insurer – for a set period.
If the disaster does not occur, the investor’s deposit is returned.
However, if the disaster does occur, the investor loses its investment in part, or even entirely.