Cat bond funds can see double-digit returns in 2024: Plenum

Plenum Investments AG, the Zurich-based specialist insurance-linked securities (ILS) and catastrophe bond investment manager, believes that performance for catastrophe bond funds should remain in the double-digits in 2024, at least for USD denominated cat bond fund strategies.

That’s for the ILS fund managers lower-volatility, flagship Plenum CAT Bond Fund as well, showing the confidence the company has in market conditions remaining buoyant for investors in insurance-linked securities (ILS).

Plenum explained that, “For 2024, we expect continued double-digit performance in USD on a no-loss basis, i.e. in the absence of major insured natural catastrophes.

“We justify this high return expectation with persistently elevated interest rates on the collateral in CAT bond structures in combination with a hard reinsurance market.”

The investment manager further added that, “The risk premiums above the collateral yield (i.e. the 3-month T bill) are still averaging around 9%.”

Plenum Investments has attended meetings with senior C-suite representatives from leading global reinsurance firms Hannover Re, Munich Re and Swiss Re lately and came away from all of them believing reinsurance rates will remain elevated, and so as a result cat bond spreads will too.

“Everything we learned confirms our view that reinsurance capacity is treated as a precious and scarce resource,” the investment manager said.

As well as strong pricing and returns being anticipated to continue for the catastrophe bond market, Plenum also anticipates further broadening of the cat bond market scope in 2024.

It said, “In the CAT Bond market, we expect broader diversification potential and, in particular, increased securitization of cyber risks and European risks.”

It’s notable European issuance is mentioned, as this is a trend we have been writing about all the way through the third and fourth quarter cat bond issues, as European deals have upsized and priced much more attractively than in the past.

We’ve also seen more European peril focused cat bond deals come to market than for the last few years, suggesting demand for catastrophe reinsurance has risen and that the cat bond market is offering cost-comparable coverage for cedents.

Commenting on recent catastrophe bond issuance, Plenum said, “New issues are met by robust demand but the strong supply causes risk spreads to remain at elevated and very attractive levels”

The investment manager also explained that the strong deal pipeline of new cat bonds has caused significant secondary market trading activity, as ILS investors rebalanced their cat bond portfolios to accommodate new issuance.

Overall, Plenum sees a continuation of the “healthy market environment” in catastrophe bonds as most likely for 2024.

Stay tuned to Artemis as we move into 2024, for details of every cat bond as it prices and settles, as well as news on any new cat bonds that come to light.

The Artemis Deal Directory lists all catastrophe bond and related transactions completed since the market’s first deal in the late 1990’s. The directory also lists the cat bonds waiting to settle, which are highlighted in green at the top of the list.

Analyse the catastrophe bond market using our charts and visualisations, which are kept up-to-date as every new transaction settles.

Download our free quarterly catastrophe bond market reports.

We track catastrophe bond and related ILS issuance data, the most prolific sponsors in the market, most active structuring and bookrunning banks and brokers, which risk modellers feature in cat bonds most frequently, plus much more.

Find all of our charts and data here, or via the Artemis Dashboard which provides a handy one-page view of cat bond market metrics.

All of these charts and visualisations are updated as soon as a new cat bond issuance is completed, or as older issuances mature.