October 2025 | 
3 min read
As climate risks reshape financial markets and investors search for uncorrelated returns, MLC Asset Management believes everyone should have exposure to insurance-linked securities.
Co-head of alternatives, Gareth Abley, has been investing in insurance-linked securities (ILS) since 2007 – through calm periods and catastrophe cycles alike. “It’s an asset class that provides reinsurance against natural catastrophe events. You get paid as the provider of capital, a coupon or an interest rate, above cash, for being exposed to things like hurricanes and earthquakes,” Abley told Investor Daily.
“The thesis for an investor, whether it be a retail mum and dad investor or an institutional investor, is that it allows you to access an attractive risk-adjusted return.” He believes ILS still offers compelling value, even after years of elevated losses and capital outflows. “A lot of investors suffered losses between 2017 and 2022. MLC made money every year – that’s partly because we’ve designed the portfolio to be quite risk controlled, so you can still make money even if there are a large number of events.”
“The period from 2017 to 2024, where you’ve had much more events, much more losses at the industry level, returns have been cash plus 5 per cent per annum. So the returns interestingly have been consistent, so that’s partly just the intersection of higher losses with spreads getting wider, particularly in the last couple of years to compensate us for those risks,” he said. Abley said events generally have to be extremely large to impact most of these instruments, with hurricanes being the most dominant risk for investors in the asset class.
“Having more hurricanes is an issue, but one of the quirks of the space is that very few hurricanes make landfall – and very few hurricanes make landfall in a way that causes material damage,” he said.
Abley suggested that a one in 30 or one-in-fifty-year event is what typically causes material damage to a portfolio. “For example, MLC is only one investor, but we’ve made money every year for 18 years and in the 18 years, there’ve been lots of hurricanes. “You can still construct a portfolio that makes money.”
The increased focus on climate change risk is prompting investors to ask whether they’re being adequately compensated for all the risks they’re exposed to. “You’re getting very well compensated for that risk, given where pricing is. It’s quite a cyclical industry. Pricing changes through time, so that’s driven by how many events there are,” he said.
Media reporting of disasters can sometimes be a barrier to capital entering ILS markets, Abley observed.
“These are obviously like major events that cause a lot of trauma and damage to people and deaths. They’re obviously worth reporting on respectfully and proportionately, but I think because they appear on the news and because they’re in the mind’s eye for a lot of people ... there’s a bit of an aversion to (investing in ILS),” Abley said.
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