Following the insurance losses from catastrophic events worldwide in 2017 and 2018, the valuation and risk reporting of funds investing in (re)insurance-linked securities (“ILS Funds”) has become an area of heightened scrutiny by investors.
The SBAI Toolbox on Valuations memo provides detailed guidance to managers and investors on what constitutes a robust valuation framework consistent with the SBAI Alternative Investment Standards, including governance arrangements, processes for hard-to-value assets and investor disclosures. It also identifies particular aspects of the process that relate to ILS Funds, including processes for capturing material information about catastrophe events, use of modelling, income recognition and loss estimation procedures. The memo also suggests questions that investors might wish to ask when assessing a manager’s approach to valuation.
The document, developed by a working group of institutional investors, investment managers, and investment consultants, is the first in a series of Toolbox Memos on ILS Funds to be published by the SBAI.
Better risk disclosure by investment funds and the ability to aggregate risks at portfolio level has been a priority for many institutional investors in recent years. The Insurance Open Protocol (IOP) is a reporting template which standardises the collection, collation and representation of risk information of ILS fund managers. It provides a uniform framework with consistent data inputs, standard calculation methodologies and regular and timely reporting. IOP forms part of the broader Open Protocol (OP) risk aggregation framework, available in the SBAI Toolbox. The insurance Open Protocol Template and Manual is available for download here.