Swiss Re Insurance-Linked Fund Management

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2012 cat bond market saw annual return 58% above average: Lane Financial


The catastrophe bond and insurance-linked security market delivered investors the third highest annual return of the last decade, according to date from ILS, cat bond and reinsurance consultancy Lane Financial LLC. In a report published recently which looks at statistics from the cat bond market in the fourth quarter of 2012, data shows that 2012 ranked third in terms of the annual insurance return with 9.63%, which is approximately 58% above the average annual insurance return of 6.08%.

Lane Financial’s metrics separate out the insurance return and floating return from the total return that their tracked index of catastrophe bonds made. The floating return in 2012 was the second lowest on record at just 0.60% due to the historically low-interest rates in the broader financial markets. The insurance return was the third highest on record and given the low floating return it is the insurance return that matters to investors right now.

Total return, the sum of insurance and floating returns, was the fifth highest on record according to Lane Financial’s figures at 10.28%. This is very close to the total return as measured by the Swiss Re cat bond index which we recorded at 10.3%. The 10.28% annual total return for 2012 that Lane Financial recorded is almost 23% above the ten-year average of 8.37%.

Thanks to the impressive returns made in the catastrophe bond market in 2012 helped another of Lane Financial’s metrics increase. It tracks the total value of a $100 index investment in cat bonds made at the start of 2002 and by the end of 2012 this investment would have grown to $240.18, equivalent to a 8.29% compound annual growth rate.

These figures show what a good year 2012 was for investors in the catastrophe bond market with attractive returns achieved despite the impact of hurricane Sandy. There are not many asset classes which can boast an annual growth rate of over 8%, and offer a lower-correlated portfolio diversification opportunity with such low volatility, so it is easy to see why the asset class is so attractive to investors right now.

Annual ILS insurance return profile

Annual ILS insurance return profile - Source: Lane Financial LLC

Read our article from yesterday which discusses the report from Lane Financial LLC:

Insurance-linked security rates rise slightly, returns recover from Sandy in Q4: Lane Financial

You can download a full copy of the quarterly ILS market report on the Lane Financial website where you’ll need to register to download a copy.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

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