SBAI » ILS Funds

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Insurance-Linked Funds

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.

Side-Pocketing in ILS Funds

In insurance linked strategies (“ILS”), valuation uncertainty is often caused by the occurrence of large loss events where the losses have yet to be defined or realised. After such events, insurance strategies can suffer prolonged periods of valuation uncertainty because of the extended process of loss discovery and settlement. Side-pockets are widely used in such times and can play a valuable role in mitigating the consequences of valuation uncertainty. This SBAI Toolbox Memo sets out some considerations and recommendations for asset managers and investors relating to the mechanics of side-pocketing within ILS Funds including:

  • The Objectives of Side-Pockets for ILS Funds including fair treatment between existing, new and redeeming investors
  • ILS Specific Considerations in Side-Pockets including a discussion of the “By Event” and the “By Contract” methods and the fair allocation of trapped collateral, and
  • What the SBAI Alternative Investment Standards say in terms of disclosure, timing, fees and governance.

It also contains a list of questions that investors may wish to ask asset managers during their due diligence processes.


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.

Risk Reporting

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.

Press release (05-2021)

Press release (05-2019)