Swiss Re Insurance-Linked Fund Management

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Demand for diversifying perils from insurance-linked securities investors higher than supply


Plenum Investments, the Zurich based investment manager with a focus on alternatives such as insurance-linked securities and catastrophe bonds, notes in its May monthly fund performance update that both the primary and secondary ILS markets were relatively calm in May as investors held their positions.

Due to the slower than normal activity in Q2 this year there has been a lack of supply to satisfy investor demand in the market lately. With so many cat bonds maturing in recent months, investors have capital to put to work and Plenum note that demand for diversifying perils are significantly higher than supply at the moment. The recent launch of the Loma Reinsurance Ltd. cat bond will help to soak up some of this demand but it certainly won’t be enough to satisfy everyone with many significant players unable to access the cat investment market at this time.

In the secondary market Plenum say that U.S. hurricane bonds have lost on average half a percentage point which is typical of seasonal price adjustments in the run up to the hurricane season. Plenum expects their funds performance will go up going forwards, as we progress through the U.S. hurricane season, as we see price increases on U.S. hurricane cat bonds. This is typical market behavior that we see each year but any major landfalling hurricane could see the trend reverse.

On other classes of catastrophe bond risk in the secondary market, Plenum notes that U.S. earthquake and Japan typhoon cat bonds remained flat in May, European windstorm cat bonds were on average down about 5 basis points and Japanese earthquake exposed cat bonds showed a gain of around 3% as they continue to recover from mark to market losses after the Tohoku earthquake.

On the recent tornado activity in the U.S. Plenum note that none of the catastrophe bonds exposed to these events had been triggered at the time of writing of their report. However we believe that losses are mounting and likely to surpass the estimates made so far and with some time to go until the peak of the U.S. tornado season passes the fate of these cat bonds is still a little uncertain. Plenum does note that there have been mark to market losses against the tornado exposed cat bonds that they hold a small allocation of, but they consider this an over reaction by the market as they have not yet been triggered and expect them to regain any losses.

Their fund was mostly stable during May, down just 3 basis points, which is typical of this time of year given the usual market reaction to an impending hurricane season.

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