The Pioneer Insurance-Linked Securities Strategy provides a unique opportunity to invest in an alternative asset class that is uncorrelated with financial markets. This may result in strong diversification benefits and an attractive risk/return profile. We believe a portfolio construction approach that mimics the regional and peril exposure of the global reinsurance industry and that seeks to reduce adverse selection through a comprehensive due-diligence process can add value over a purely passive approach over time.
Insurance-linked securities investors take on the role of a reinsurance company, receiving premiums in exchange for accepting the risk of a loss. If the triggering events do not occur during the lifecycle of the agreement, the investor enjoys a periodic coupon payment related to insurance premiums and principal repayment at the end of the investment term. If one of the specified events occurs, all or part of the principal is used to pay insured losses and the investors' coupon payments cease or are reduced. At maturity there is either zero or a reduced amount of principal repaid.
The Strategy is actively managed and focused on fundamental research. Key features of the Pioneer Insurance-Linked Securities Strategy include:
- Active management approach: Pioneer Investments utilizes a research-intensive approach to Insurance-Linked Securities investing that seeks to minimize adverse selection and non-modeled risks. Pioneer's global fixed income and equity research analysts support the Portfolio Management team, which includes comprehensive coverage of the insurance industry. We believe this provides unique insights into the reinsurance industry's approach to capital markets and should result in strong long-term, risk-adjusted returns.
- Risk management focus: Our process utilizes a deep team of quantitative risk analysts and sophisticated modeling capabilities. Analysts work closely with the Portfolio Management team to provide comprehensive portfolio risk and attribution analysis. The risk modeling process is supported by Air Worldwide's CATRADER® system, a risk analytics system widely used by the insurance industry.
- Experience and commitment: Pioneer Investments has been investing in the asset class since 2007. Since then, the market structure and investor base has evolved significantly. We currently manage over $1.6 billion in total insurance-linked securities assets including in mutual fund and non-mutual fund portfolios. Our experience enhances our ability to evaluate and negotiate deal structures and gives us understanding in a specialized market—that can help promote strong relationships—and access to higher quality investments.
- Optimal size with global access: The Insurance-Linked Securities team is part of a broader investment organization and manages insurance-linked securities as a component of many of our diversified portfolios on a dedicated basis. We believe our size and flexibility allows us to be an attractive risk-sharing partner with reinsurance sponsors. This may enhance our relationships and provide broader market access.