Geneva Association paper hints at healthy future for insurance-linked securities

Insurance-linked securities, particularly catastrophe bonds, have had a rough time of late thanks to the economic crisis and the collapse of Lehman Brothers. Any positive outlook is a welcome thing in times like these. The Geneva Association are the latest organisation to paint a positive outlook for these capital market instruments in their latest issue of their newsletter for risk and insurance economists ‘Insurance Economics 59’. The report is largely about other areas of insurance economics but has a section on the convergence of insurance and capital markets instruments. The paper discusses the issues faced by the market, the fact that despite the credit crisis ILS have survived the test in comparison to other financial products and that ‘The significance of insurance-linked securities will undoubtedly increase over time’.

We think they’re right. The next few weeks should see the issuance of Atlas V and at least one other catastrophe bond (perhaps Redwood Capital XI?) and investor take up of these deals should give us a good insight into how they are going to be received in future. Other aspects we’ll be looking out for are changes in deal structure to help to display the non-correlated nature of cat bonds and also the careful choice of swap counterparties.

You can download the Geneva Association report here (in Adobe PDF format).