Massive pension funds have boosted the insurance-linked securities market (ILS) with investment, a panel of experts said.

Speaking at the PwC/S&P Bermuda Reinsurance 2014 conference, Michael Hamer, a partner in the London-based international financial firm Albourne Partners Ltd, said: “Seven or eight years ago, investors in ILS were hedge funds, money managers.

“Since about 2008, almost all the growth in the ILS market has been fuelled by pension funds.”

Mr Hamer added that pension funds were investing relatively small amounts of the money they had available — and were more cautious than other investors.

He said: “They’re also looking for more information and more detailed solutions — they take a particular slice of the market rather than having a portfolio.”

Mr Hamer predicted: “This is one of the things that will be evolving over time — the third-party manager rather than the reinsurer.”

The audience at Wednesday’s panel heard that insurance vehicles like sidecars offered higher returns, but higher risks, which pension funds tended to shy away from.

Jeffrey Sangster, executive vice-president and chief financial officer of Bermuda-based reinsurer Validus, said: “There is a huge amount of interest in this space from pension funds and that hasn’t gone away.”

Bank of America Merrill Lynch’s Jay Cohen said pension funds worldwide had $330 trillion under management.

He added that “pressure was building” on smaller reinsurance firms as market conditions grew tougher and larger firms dominated.

Mr Sangster said that “the first screen” that investors looked at in reinsurers was size.

Mr Cohen added, although there could be takeovers of smaller operators, it was “possible” that hedge funds might look to buy up smaller reinsurers.

Mr Sangster said: “It seems fairly certain that alternative capital is here to stay, but traditional investors and reinsurers are not going away. The big question is what the balance will be.”