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Attractive cat bond pricing & more inflows expected in 2022: Tenax


Tenax Capital, the London based hedge fund manager that was founded by CEO Massimo Figna and now counts FOSUN as its major shareholder, believes that catastrophe bond pricing and terms & conditions will remain attractive through 2022, while more inflows from generalist fixed income investors are possible.

Tenax Capital ILS logoTenax Capital launched its first insurance-linked securities (ILS) strategy, a UCITS compliant catastrophe bond investment fund, the Tenax ILS UCITS Fund, back in 2017.

The Tenax ILS UCITS fund has been managed by former Swiss Re executive Marco della Giacoma since its launch, but the company also added Toby Pughe as an ILS Analyst last year, as it seeks to build on this strategy.

At the end of 2021, the Tenax ILS UCITS Fund had lifted its assets under management to just over EUR 63 million, representing more than 130% growth in assets for the year for what is still a relatively young strategy.

You can track aggregated UCITS catastrophe bond fund asset growth here.

It remains a smaller UCITS catastrophe bond fund, but a growing one and its performance remained attractive in 2021 despite the high levels of natural catastrophe losses that hit the reinsurance and ILS marketplaces.

Tenax’s UCITS catastrophe bond fund strategy delivered a 3.24% return for the full-year 2021, managing to avoid all major loss events and not being impacted by hurricane Ida during the year.

“The Tenax ILS UCITS Fund delivered a positive return and continued to represent a safe haven from volatility in the rates market and a protection against rising inflation,” the portfolio manager explained in an update.

Adding, “Our disciplined selection process and portfolio diversification were vital in minimising losses in what turned out to be a record loss year for global (re)insurance markets. We note the Fund did not suffer any loss as a result of Hurricane Ida which was the largest named storm of 2021.”

Importantly, Tenax has adopted a strategy of seeking to avoid exposure to secondary perils as well as having a “focus on quality structures and issuers,” when it comes to choosing cat bond investments.

The investment manager is bullish about prospects for the catastrophe bond market in 2022, especially as reinsurance rates have been on the rise at recent renewals.

“We expect the pricing environment and terms and conditions to remain attractive in 2022,” the portfolio manager wrote, adding that “Pricing in the underlying (re)insurance markets has seen double-digit rate increases, and terms and conditions continue to tighten, especially for loss affected business and aggregate deals.”

The manager expects pricing may move at different rates for different exposures, as the market adjusts to recent loss history.

They explained that, “Dispersion in pricing should widen between peak and non-peak perils as risk premia adjust on the latter.”

Tenax is also expecting the cat bond market to be busy again in 2022, with a strong flow of new deals coming to market.

“In terms of new transactions, we expect a healthy pipeline of new catastrophe bond issuances in 2022, both from expiring coverage renewals and from first-time sponsors,” they commented.

Finally, the Tenax ILS team also expect to see more inflows from an increasingly diverse investor base that looks to catastrophe bonds in 2022.

Saying that, “We wouldn’t be surprised to see inflows in the market from perhaps generalist fixed income investors looking for a hedge to inflation and rates.”

More generalist fixed income investors and also investment managers have been steadily allocating to catastrophe bonds in recent years.

With the asset class offering a healthy source of diversified return, the current economic environment may drive even more of this type of investor to look at insurance-linked securities (ILS).

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