Catastrophe bonds; a unique asset class offering sizeable returns

It seems that you can’t go a week without seeing a mention of catastrophe bonds or insurance-linked securities in a main-stream business newspaper these days. This is testament to the growing profile of the market and the increasing interest in the asset class from both sophisticated institutional investors and now some savvy retail investors too.

The Financial Post, which is the financial markets section of the Canadian National Post newspaper is the latest to offer up cat bonds as a viable alternative investment asset class to their readers (their full article here). They list cat bonds alongside options, hedge funds, real estate and private equity as examples of alternative investment opportunities that can now be accessed more easily by both institutional and retail investors.

Cat bonds, while traditionally the realm of the sophisticated investor can now be accessed by retail investors thanks to initiatives such as the GAM Star Cat Bond Fund (our coverage of that funds launch here) which has a minimum investment size of $10,000. These routes for retail investors to access the market are on the rise the article says.

“If you are looking for something not linked to typical asset classes, cat bonds are unique,” says Ryan Bisch, director of Exotic Alternatives at Mercer Investment Consulting in the article. “At the same time, investors are getting exposure to very large events. If the big one hits San Francisco, clients will always want to know what that is going to mean to them.”

We expect this trend of cat bonds being discussed in main-stream press sources will continue especially if the market grows this year and if more retail investment options emerge.