The insurance-linked securities (ILS) allocation of global beverage and food giant The Coca Cola company’s pension fund has grown in 2020, ending the year 5% larger at $362m.
Coca Cola’s corporate pension plan has been invested in insurance-linked securities for a number of years, with as much as 5% of its assets allocated to the ILS sector.
Having previously cited the ILS asset class as attractive due to the diversified source of investment return that ILS, and reinsurance more broadly provides, Coca-Cola is focused on the uncorrelated nature of ILS assets and the fact they can be almost equity-like in their returns.
Coca Cola’s U.S. pension fund has allocations to a number of ILS funds, including having allocated to London-based specialist ILS fund manager Securis Investment Partners. We can’t be certain who the pension is currently invested with in ILS.
The Coca-Cola pension fund’s allocation to insurance-linked securities (ILS) and other reinsurance linked assets was impacted by the catastrophe loss years of 2017 and 2018, which triggered a shrinking of the ILS allocation over the next few years.
At the end of 2015 the ILS allocation was $544 million, but subsequently grew to a high of roughly $600 million invested in the ILS asset class by the end of 2016.
Coca Cola’s ILS market allocations came from across the sector, we understand, including catastrophe bond only funds and also strategies invested in collateralised reinsurance.
The Coca Cola pension fund’s ILS allocation shrank to $564 million by the end of 2017, presumably due to some initial impacts from the severe hurricanes of that year
The ILS allocation continued to shrink at an increasing rate in 2018, with the value of the Coca-Cola pension fund allocation to ILS falling by around 30%, to end the year at just $403 million in size.
2019 saw a further shrinking, with Coca Cola reporting its pension fund’s ILS allocation as ending the year 14% smaller at $346 million.
But 2020 has seen the allocation return to growth, ending the year at $362 million, which is up just under 5%.
It’s assumed this is growth through the ILS market returns generated by the allocation, rather than any fresh allocations being made.
The ILS fund allocation equates to roughly 4.2% of the pensions assets, so only slightly down proportionally from the end of 2019’s 4.3% of assets.
It will be interesting to see whether the ILS allocation within Coca Cola’s US pension fund increases in size in 2021, as it’s possible the pension investor may make some fresh allocations to the asset class given the current reinsurance rate environment.