Cat bonds vs collateralised re


Cat bonds vs collateralised re

Hurst Photo /

Henning Ludolphs, managing director of retrocessions and capital markets at Hannover Re, examines the pros and cons of, and offers some observations about, cat bonds and collateralised reinsurance.

The insurance-linked securities (ILS) market reached a volume of approximately $60 billion at the end of 2014, an increase of more than 20 percent, or $10 billion, on a year ago. This is remarkable growth.

At the same time the amount of new catastrophe bond issuance has increased from about $7.7 billion to $8.7 billion. This is still a significant increase in percentage terms, but in US dollar terms it is ‘only’ one billion, so where is the rest?

A few years ago the transfer of re/insurance risks to capital markets by way of collateralised reinsurance started. Nowadays collateralised reinsurance represents about $30 billion, or half of the ILS market. This compares to around $24 billion of catastrophe bond volume overall, of which $8.7 billion is new issuance with the balance being outstanding from issuance in previous years. Why has collateralised reinsurance grown so much?

Hannover Re, ILS, cat bonds

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