Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Why invest in catastrophe bonds or cat bond funds?

Investing into catastrophe bond and insurance-linked securities (ILS) funds can provide a valuable source of diversification for investors, as well as a way to access insurance market-linked returns, while directly benefiting from the risk-linked return related to catastrophe risks, or other types of insurance-linked exposures.


Why invest in catastrophe bonds?

Catastrophe bond investments can deliver a range of returns, with cat bond fund strategies available that target low single-digit returns, to higher-risk strategies targeting high single-digit to low double-digit returns.

The majority of catastrophe bond funds tend to target low to mid single-digit returns, given the available spread of issued bonds in the marketplace.

Cat bonds can provide investors with the potential to earn higher returns compared to other fixed income investments, especially during times of low interest rates.

However, as a floating rate instrument, cat bond returns are delivered on top of the return from cat bond collateral, which is typically in treasuries or similar and so the return potential of the cat bond market normally rises in-line with rising interest rates.

Importantly, cat bonds help investors to diversify their investment portfolios and reduce overall risk within them.

As a relatively uncorrelated asset, cat bond returns are not linked to other asset classes or financial market metrics.

In addition, cat bonds are liquid instruments, making it easier for investors to buy and sell them as needed and so cat bond fund managers can adjust their portfolios and even sell distressed, or loss threatened assets.

Cat bonds can be difficult for investors to access directly, so most will allocate to the asset class via a cat bond fund manager.

There are a range of cat bond funds available, from UCITS and mutual funds which are more widely available, to closed-end strategies for sophisticated investors only.

It’s also important to remember that catastrophe bonds and other forms of insurance-linked securities (ILS) can provide investors with a way to access returns from the global reinsurance market without taking on the correlated and corporate risks of investing into the equity of financial services companies.

View details of some ILS and cat bond fund managers here.

Analyse the performance of an Index of cat bond funds here.

View details of almost every catastrophe bond ever issued in the Artemis Deal Directory.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis ILS NYC 2023 - Insurance-linked securities conference in New York City

Get a ticket soon to ensure you can attend. Secure your place at the event here!

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