The popularity of insurance-linked securities (ILS) has been evidenced by four recent catastrophe bonds.
The largest of these deals, Residential Re 2012, rose from an initial size of $250 million to $400 million, due to high demand from investors. The increase in the size of these deals indicates the strength of investors’ appetite for catastrophe bonds, according to John Seo, co-founder and managing principal at speciality investment management firm Fermat Capital Management.
Others agree. While yields on traditional fixed income products remain low, it is not surprising that investors continue to look at ILS as an uncorrelated, diversified asset class, according to Paul Traynor, managing director and head of insurance segment EMEA at BNY Mellon.
“ILS will continue to be an attractive asset class despite Sandy; following a loss, the ILS market tends to benefit from a degree of hardening,” he says.
He adds that ILS also provides investors with transparency. Investors know what they have invested in and it is clear, through quarterly and monthly reports, what losses they might be exposed to from specific events, Traynor notes.
“The ILS investor base is now also predominantly made up of institutional investors with a long term view, such as a 50 year horizon. This allows them to recover their money post event and still make a profit over the period of the investment,” he says.
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ILS, catastrophe bonds, Residential Re 2012