More diversification away from cat bonds expected
Insurance-linked securities (ILS) managers are expected to further diversify away from traditional catastrophe bonds.
This is according to a report from specialist publisher Clear Path Analysis market, which added that ILS managers were continuing to diversify with a particular focus on new perils in emerging markets and collateralised reinsurance.
This follows a record year for annual property catastrophe bond issuance, with a total of $8 billion of limit placed. In December last year, total catastrophe bonds on-risk stood at $24.3 billion, another record for the market, and an 18 percent increase over the prior year period.
The report explained that the traditional CAT bond market is becoming saturated with interest, driving investors and managers to look elsewhere for better returns.
Dirk Lohmann, chief executive officer of Secquaero Advisors, said: “In terms of weather related risks I would say flood, whether European or US, is likely to impact the most in the next five to ten years and as a result models are currently being developed to measure that. Specific areas that are likely to become more relevant include natural catastrophe risks in China where they regularly experience earthquakes and typhoons.”
Marcel Grandi, head of ILS underwriting and ILS life of Credit Suisse Asset Management, added: “Until a couple of years ago life ILS was basically an unknown asset class but today interest in non-CAT bonds and private transactions is growing rapidly. Investors have an interest in this space because of the low correlation to traditional asset classes and the conservative risk profile with expected loss, e.g. below 1 percent.”
According to the report, ILS managers have spent recent years at the forefront of innovation in an attempt to maximise their investable opportunities.
Michael Stahel, partner at LGT Capital Partners, said: “We are seeing the larger primary insurance companies, especially some of the US primaries, starting to considerably shift their purchase for catastrophe capacity away from traditional reinsurance towards capital market investors.”
