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COVID has proven the resilience of cat bonds: Ruoff, Schroder Secquaero


The response of the catastrophe bond market to Covid-19 has demonstrated the sector’s resilience to a global pandemic, but as investor appetite intensifies, price increases could suffer, according to Stephan Ruoff, Head of Schroder Secquaero.

stephan-ruoff-schroder-secquaero-prospectus-2021After a slight slowdown amid the height of the Covid-19 outbreak earlier this year, the catastrophe bond market has gone from to strength to strength in 2020, and is on track to break numerous records by year-end.

The resurgence of the market was highlighted during the closing panel on day three of Prospectus 2021 – a new re/insurance and insurance-linked securities (ILS) conference from Artemis and Reinsurance News.

While the cat bond market has rebounded in a robust way, other sub-sectors within the ILS industry, such as collateralised reinsurance, have responded a little slower and in light of this, Ruoff shared some thoughts on why investor confidence in the cat bond space returned so quickly.

“ILS, but specifically the cat bond market, has proven to be a relatively uncorrelated asset class in itself, actually. It’s created, meanwhile, returns over a long period of time, and you can track them back to 2002 or even longer. And, if you look at the period, there’s a huge stability of returns generated over that time.

“So, overall, the asset class has quite some nice features. Then, you put on top of it that we have an interest rate environment, globally speaking now, that has gotten close to zero for most of the developed economies. It does also, I think, push interest to other areas that can provide more yield.

“And, then, COVID-19 has basically proven that the cat bond space can come out of it without much harm done or any harm done, to some extent, on the cat side. All that brings, obviously, an environment where investors really like the cat bond space and this is what we do observe as we speak. We see relatively important inflows into the area,” he explained.

As shown by the Artemis Deal Directory, in terms of the number of deals, 2020 is already a record year for cat bond issuance and looking ahead, it’s likely that total issuance volumes will set an all-time high as well.

However, while heightened interest and growing appetite for cat bond investments suggests a strong pipeline for 2021, Ruoff warned that this could also dent some of the positive rate momentum witnessed in more recent times.

“The downside to that will certainly be that the price increases that we have seen in the cat bond space over the last six, 12, maybe 18 months even, may not continue in the same way. And, obviously that’s why I was saying at the beginning, that you have cat bond capacity available for ceding companies. Which, I think is a great thing because this does provide capacity that provides capital to certain areas of the market that are in need of capital.

“So, I think, broadening the capital sources and offering risk transfer markets more than just reinsurance or retrocession, through the direct access to capital markets, is a great thing,” said Ruoff.

To register and watch every session live or on-demand please visit the Prospectus 2021 website.

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