Swiss Re Insurance-Linked Fund Management

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Catastrophe derivatives in demand in run up to hurricane season

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It’s no surprise to read in Business Insurance that sales of catastrophe derivatives in the run up to the Atlantic storm season are strong, with volumes traded up and prices up to as well. Demand is being helped by the general scarcity of reinsurance and the fact that catastrophe bonds are currently an expensive option. Industry loss warranties (ILW) and event linked futures traded on exchanges such as IFEX are absorbing most of the demand. This demand is likely to continue up to the start of the season and we could see another peak once storms start to form in the Atlantic.

The article is well worth a read as a great overview of what’s happening in these markets right now. Some particularly good points include the mention of the huge change in value of the Japanese yen currency which could explain the lack of cat bonds covering Japanese perils this year (as derivatives prove much cheaper) and comments from Munich Re that instruments such as derivatives and cat bonds should be seen as ‘additional tools in the box’. That’s a very pragmatic approach to these instruments and fits best with our opinion that they work best as part of a holistic approach to reinsurance and risk transfer.

Read the full article on the Business Insurance website.

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