Elementum ILS business “in good shape” amid Covid-19: White Mountains

The insurance-linked securities (ILS) fund management business of Elementum Advisors, LLC is “in good shape” despite the global Covid-19 pandemic, according to its key investor White Mountains.

In a letter to shareholders detailing the currently expected exposure that it faces from the coronavirus pandemic, White Mountains highlighted the lack of correlation ILS businesses and reinsurance linked investments have to global financial market movements.

White Mountains acquired a stake in ILS fund manager Elementum Advisors in May 2019, confirming news that we originally broke in April of last year.

The company paid $55 million for a 30% stake in Elementum, which valued the ILS fund manager at roughly $183 million. White Mountains then allocated $40 million to Elementum ILS funds, topping that up with another $10 million in time for the January 2020 reinsurance renewals.

George Manning Rountree, CEO of White Mountains, explained to the firms shareholders that given the global nature of the Covid-19 pandemic “White Mountains will not be spared.”

But while the group has investments and holding companies that are exposed to the pandemic directly, with its investment in ILS fund manager Elementum, White Mountains sees this as relatively immune for now.

“Elementum’s business is in good shape,” Rountree explained. Adding that it, “has low correlation with the broader macroeconomic cycle and financial markets.”

Of course, when world-changing events occur there is always a chance of correlation, as seen through catastrophe bond price pressure and mark-to-market declines as a result of this.

But these are temporary and expected to be recovered.

For reinsurance more generally, the outlook remains uncertain and there is a chance of ILS fund exposure to pandemic interruption claims through some reinsurance programs. But right now this does appear limited and likely to be ruled by litigation in many cases, meaning for now the low correlation of ILS holds true.

Depending on the BI related issues that the entire insurance, reinsurance and ILS industry faces, the chances are ILS fund managers come out of the pandemic with investment strategies that could be in high demand, as the asset class demonstrates its lack of correlation once again.

But the uncertainty related to this issue, which is perceived as significant by many of the respondents to our market survey, could slow down ILS over the coming months and make raising capital more of a challenge.